Rates hold, shares jump

AUSTRALIAN shares bolted higher on Tuesday after the Reserve Bank of Australia kept rates on hold.

The ASX200 index closed 0.95 per cent higher at 7313.9 points, while the All Ordinaries Index rose 1.01 per cent to 7605.2.

The local bourse jumped shortly after opening, faltered, then took off again in late trade after the RBA decided to keep the official cash rate at the historic low of 0.1 per cent.

Financial markets have ramped up expectations that the rate hike cycle could begin as early as next year but not all economists agree.

BIS Oxford Economics chief Australia economist Sarah Hunter said an RBA rate rise in 2022 looked unlikely, assuming the impact of Omicron and other possible Covid-19 variants was limited.

“Although aggregate wages growth has not risen sharply, there has been a step up in private sector wages, and given the tightness of the labour market, this will continue,” Dr Hunter said.

“Furthermore, the ending of public sector wage freezes will also feed through, and together with core inflation staying within the 2-3 per cent band through 2022, conditions will be ripe for monetary tightening in early 2023.”

Comparison site RateCity has found despite no move in the cash rate, home loan rates are on the march. RateCity said its data showed 107 lenders had cut at least one variable rate this year, however most had only cut the basic rate and only for new customers.

RateCity research director Sally Tindall said many banks were moving to drop variable rates in a bid to gain market share, but had room to move after not passing on the last two RBA rate cuts in 2020.

“However, these ultra-low variable rate cuts are primarily for new customers,” she said. “Existing variable customers who haven’t haggled with their bank recently are likely to be paying the same rate they were on in March last year.”

At present 73 fixed rates are on offer at under 2 per cent, but RateCity is warning these could dry up by 2022.

Ms Tindall warned cheap loans wouldn’t last.

“Even if the RBA doesn’t hike rates in 2022, it’s entirely possible banks will,” she said. “To date, the rising cost of funding has only affected fixed rates. However, it could get to a point where lenders decide they also need to hike variable rates ahead of any official move from the central bank.”

CommSec analyst Tom Piotrowski said it had been eventful on global markets, including US chief medical adviser Anthony Fauci advising the Biden administration the Omicron virus variant was perhaps not as lethal as initially thought.

“Chinese authorities have cut the required reserve ratio for Chinese financial institutions, which will liberate quite a bit of money into the Chinese economy that will be freed up for lending and promote activity,” Mr Piotrowski said.

“Those things underpin the gains that we’ve seen for not only northern hemisphere markets but also the pulse for the local market over the past day.”