What the RBA overhaul means for interest rates

The Reserve Bank of Australia (RBA) is facing a major overhaul following an independent review.

What does it mean for interest rates and for Australian mortgage holders? We dive into all your questions in this article.

Why was there a review?

Treasurer Jim Chalmers announced the review in July 2022 – the first review of the RBA since the central bank started to target inflation in the early 1990s.

“The Review is all about ensuring Australia’s central bank and monetary policy arrangements are as strong and effective as they can be into the future,” Treasurer Jim Chalmers said.

The final report, ‘An RBA fit for the Future’, was released on April 20, 2023. It looked at the RBA’s performance over the past three decades.

What were the key recommendations?

The review made a lot of recommendations – 51 to be precise. The gist was for decisions about the cash rate to be made with broad input, and the reasons for any changes to be much clearer to the public.

Some of the key recommendations included:

  • The RBA should have a ‘monetary policy board’ with greater economic expertise and shift to eight meetings a year (instead of 11) to allow more time to consider issues.
  • There should be a press conference after each meeting to encourage more transparency, and board members should speak publicly about the board’s work.
  • Two separate boards should be established – one for monetary policy, the other for governance of the RBA.
  • The inflation target of two to three per cent should be retained.
  • There should be five-yearly reviews of the RBA’s monetary policy framework and policy tools.

So, what’s next?

The government is expected to legislate changes relating to the review from next year. Mr Chalmers has indicated he is hopeful the changes to the RBA could take effect by July 2024.

Meanwhile, RBA Governor Philip Lowe welcomed the recommendations. “The board will consider these issues over coming meetings and develop and implement a new set of arrangements,” he said.

What about the impact on interest rates?

As mentioned, the RBA currently meets 11 times a year on the first Tuesday of the month (except in January) and the board makes a decision about the cash rate. After the decision, lenders decide whether to adjust their interest rates.

If the recommendations of the review go ahead, the monetary policy board will meet 8 times a year. There will be more time between meetings for the board to weigh up the latest economic indicators before making a decision.

In other words, homeowners won’t get back-to-back rate hikes (or pauses or cuts) every month.

And with fewer cash rate changes, there will be more time for households to adsorb and adapt to any cash rate hikes.

On the flip side, with fewer meetings, it may also be necessary to make larger changes to the cash rate (which has been the case with the US Federal Reserve and the Reserve Bank of New Zealand).

Like to know more?

We’d be happy to answer any other questions you might have about the RBA overhaul and what it means for you. Please get in touch and let’s chat.

Sydney, we have a problem!

And, it has nothing to do with our addiction to expensive smashed avocado!

Put simply, our problem is our tribe…… there are too many of us, and we are growing faster than we can handle.

Earlier this year, Sydney’s population topped 5 million after adding an additional million people in just 16 years.  Previously it took the city almost 30 years (or double the time) to grow from 3 million to 4 million people.

The result?  Sydney is the only capital city in Australia currently undersupplied for housing.

So what does this city look like when gazing into the crystal ball?

It is projected that Sydney will have a staggering population of over 8 million people in 40 years’ time.  This will require a very robust construction pace, in order to adequately provide housing for the additional 3 million people who will be calling Sydney home.

And now we get to the real guts of the problem. Developers in NSW have been hit with some of the toughest planning rules anywhere in this country, due to the requirements of the Apartment Design Guide that provide guidance on how to adhere to the principals of  NSW’s State Environmental Planning Policy (SEPP) 65.

For instance, 70% of apartments must gain solar access in mid-winter for at least 2 hours between 9am and 3pm, making it much harder for many developments to be approved. There are no such planning requirements in Melbourne or Brisbane.

Add to this, Sydney’s requirement for cross ventilation, minimum space requirements and a host of other regulations that other cities don’t require, and you start to understand why we have a real issue on our hands.

Is it any wonder that those who already own property are sitting tight, or buying more? The net result will be that we will have more renters, willing to pay higher rents, much higher property purchase prices, and we will have to put up with reading about the ‘Sydney affordability crisis’ every time we pick up a newspaper.

 – Kiril Ruvinsky, Director Corporate Partnerships