Financial markets have priced in four interest rate rises this year. The cash rate,which was last increased in 2010 when it returned to 4.75 per cent,has been at an all-time low of 0.1 per cent since November 2020.
In November last year,Dr Lowe – who had previously said interest rates were likely to remain unchanged until 2024 – said market expectations of a rate rise in 2022 were a “complete overreaction” to inflation pressures,adding the chance of an increase was “extremely unlikely”.
Since then,the consumer price index has soared to 3.5 per cent while underlying inflation,the RBA’s key measure of price pressures,has increased to a near 8-year high of 2.6 per cent.
Pressed on whether the bank would lift rates this year,Dr Lowe said the faster-than-expected economic recovery,the rise in inflation and the sharp fall in unemployment all meant a 2022 rate rise was now a chance.
“It’s certainly a plausible scenario that rates go up later this year,” he said.
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CoreLogic data this week showed the median house value has now surpassed $1 million in Sydney,Melbourne and Canberra. The average loan has also soared as the fall in interest rates has enabled people to borrow more to buy into the property market.