RBA interest rate to follow wage growth

The Reserve Bank of Australia (RBA) cut official rates to a record low of 0.1% last year. It is also engaged in a $200 billion quantitative easing program, buying federal and state government debt, aiming to keep yields on these bonds at record lows. The Reserve Bank intends to keep interest rates low until 2024 while using tighter lending standards to prevent a surge in house prices. Reserve Bank governor Philip Lowe said interest rates would only rise when wages were growing fast enough to lift inflation. Global inflation expectations, and a faster-growing Australian economy, prompted market speculation that the RBA may lift rates next year or early 2023. However, wages growth, currently at 1.4%, would have to lift above 3% to get inflation back to the bank’s target of between 2 and 3%, Lowe said. The last time wages growth was that strong was in 2013. Unemployment would have to be closer to 4%, well down from its 5.8% level at present, while under-employment would also have to fall. Banking regulators are watching the housing market carefully. Action such as tighter lending standards could be taken to cool the market. Market experts speculate the 0.1% rate could remain until 2024.