UPDATE 2-Australia’s c.bank sticks to low rates even as housing market heats up

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* RBA keeps rates at 0.1%, buying bonds at $4 bln a week

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* Economy expected to rebound in Q4 after Q3 contraction

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* Dim pay, inflation means no rate hike before 2024

* Regulators watching home loan growth, housing prices (adds fresh quote on housing)

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SYDNEY, Oct 5 (Businesshala) – Australia’s central bank on Tuesday kept interest rates at a record low for the 11th month in a row and looked set to keep them there for a few years, even as the Mandi even as pressure mounts to cool a red-hot dwelling.

The Reserve Bank of Australia (RBA) ended its October policy meeting with cash rates of 0.1% and its bond purchase program unchanged at $4 billion ($2.92 billion) in a week.

This was the result expected by all 36 analysts surveyed by Businesshala as the bank has long argued that no growth was likely until 2024 given weakness in wages and inflation.

The need for continued stimulus has been underscored by the coronavirus lockdowns in Sydney, Melbourne and Canberra, which certainly caused a painful contraction in economic growth in the September quarter.

The central bank is hoping for a speedy recovery now that vaccination rates are soon enough to ease restrictions, with about 80% of the adult population having received at least one dose.

New South Wales is set to relax stay-at-home rules from next week, following Victoria in October.

“As vaccination rates are further increased and restrictions are eased, the economy is expected to bounce back,” RBA Governor Philip Lowe said in a statement.

He said the economy should expand again in the fourth quarter and recover all the ground lost in the delta lockdown by the second half of next year.

“The bank’s business liaison and job vacancies data show that many companies are seeking to hire workers ahead of the expected reopening in October and November,” Lowe said.

Yet the prospect of rates remaining so low in the coming years has also fueled a bubble in home prices, raising much concern about affordability and credit.

The RBA has rejected calls to use rates to curb the market, arguing it would only hurt the broader economy and that macro-prudential rules were the better tool.

Regulators indicated last week that proposals on home lending would be released in the next few months and analysts expect to focus on the earnings-to-debt ratio and debt valuation.

Analysts suspect they may limit the portion of bank loans where the loan is six or more times the borrower’s income, and increase the minimum interest rate used to assess loan serviceability.

“The housing market is firmly on the radar as housing price growth remains very strong and new loans turn from first home buyers to investors,” said Christina Clifton, a senior economist at CBA.

“We expect the macro-prudential policy to be reintroduced later this year/early next year,” he said. “It is likely to remain calm on the monetary policy front until February, when we expect the RBA to further reduce bond purchases.”

$1 = 1.3717 Australian Dollar Reporting by Wayne Cole; Editing by Ana Nicolasi da Costa

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