The Reserve Bank of Australia has signalled that interest rates will be held at a record-low 0.1 per cent until at least 2024, with employment tipped to take several years to recover.

The Reserve Bank of Australia confirmed that it will keep the cash rate at 0.1 per cent at its first rate meeting of the year, as was predicted by experts. But in a move hailed as unexpected, the RBA also committed to an additional $100 billion of quantitative easing ahead of schedule.

“At its meeting today, the board decided to maintain the targets of 10 basis points for the cash rate and the yield on the three-year Australian government bond, as well as the parameters of the term funding facility,” the RBA said.

“It also decided to purchase an additional $100 billion of bonds issued by the Australian government and states and territories when the current bond purchase program is completed in mid April. These additional purchases will be at the current rate of $5 billion a week.”

While praising Australia’s economic recovery to date, the RBA said the “economy is expected to operate with considerable spare capacity for some time to come”.

“The unemployment rate remains higher than it has been for the past two decades, and while it is expected to decline, the central scenario is for unemployment to be around 6 per cent at the end of this year and 5½ per cent at the end of 2022.”

As such, the board confirmed that it will not be increasing the cash rate until 2024 at the earliest.

“The board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market.

“The board does not expect these conditions to be met until 2024 at the earliest.”

Property prices to soar

According to analysts, the record-low interest rate will send property prices soaring.

Shane Oliver, chief economist at AMP Capital, expects that this decision will leave mortgage rates at record lows, which, along with government home buyer incentives and economic recovery, will continue to push average property prices higher.

“Headline inflation will rise due to base effects as the collapse in petrol prices and childcare costs drops out of annual comparisons, but underlying inflation will remain low at around 1.5 per cent or less out to next year.

“This in turn will see the RBA leave rates at 0.1 per cent probably out to end 2022 at least,” Mr Oliver said.

In a document released by the RBA last month, following a Freedom of Information request, the bank predicted that a permanent 1 percentage point (100 basis point reduction) cut in the official rate could increase real housing prices by 30 per cent over three years.

With the RBA clearly alert to the risks from low interest rates, property experts believe the bank’s predictions are fairly accurate.

“With what we can see today based on recent shifts in inventory levels, we would be comfortable in saying the RBA forecast will apply in 75 per cent of regions,” self-proclaimed data nerds Arjun Paliwal and Kent Lardner told Smart Property Investment.

According to their analysis of inventory level trends over the last two years, a substantial decline in stock levels is evident, creating high price pressure.

“There has been a dramatic decline in stock levels relevant to sales volumes (inventory levels). This change is creating many high pressures,” InvestorKit’s head of research, Mr Paliwal, and Suburbtrends’ Mr Lardner said.

“Most regions across Australia are seeing a decline in days on market. This is likely to flow onto prices and a reduction in vendor discounting across house markets,” they noted.

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