RBA calls time on ultra-low interest rates - The Conversation

The Reserve Bank governor’s message, at a hastily convened 4pm Melbourne Cup day press conference, was that emergencies don’t last. For more than a year the bank has come close to guaranteeing that its record-low emergency cash rate of 0.10% will stay in place for three years, and that it will buy as many three-year government bonds as necessary to keep the three-year bond rate at 0.10%.

After yesterday’s board meeting that commitment was “discontinued”, along with lenders’ ability to offer sub-2% three-year fixed mortgages. In the run up to Tuesday’s announcement, bond traders had begun pushing the three-year bond rate way above the Reserve Bank’s target, and last Thursday the bank gave up trying to stop them. Soon this will mean higher variable mortgage rates as well, although RBA Governor Philip Lowe says he doesn’t expect to lift the cash rate for more than a year.

Former Reserve Bank economist Isaac Gross has been better than most at forecasting what the bank will do throughout the pandemic, and he predicted something like this in July. Today he takes us through what happened in the past few days, and what it means for the housing market. Hint: no price keeps climbing forever.

Also this morning, I write about the carbon tax we are about to get, whether we want it or not. The difference between this one and the short-lived carbon price introduced by Julia Gillard in 2012 is that this time, the revenue will be sent overseas as “carbon tariffs” levied by importing nations with stronger climate commitments.