It’s great news from the horse’s mouth (i.e. the Reserve Bank of Australia) but can you trust them when they double down, no, triple down on telling us that interest rates will stay where they are at record low levels?

This chart above shows we are at record low levels but that doesn’t prove we’ll stay here.

Remember, a low cash rate means home loan rates will remain low, but right now the bond market is arguing with all central banks that they globally can’t keep interest rates around current low levels.

The RBA Board’s minutes from its last meeting has told us, and bond investors in particular, that it will work its magic to keep rates low. If interest rates on, say, three-year bonds, start to rise then those who’ve bought bonds at lower rates effectively have a capital loss.

Why? Well, if they wanted to sell their bonds to someone else, their lower interest rates mean buyers would make them sell at a discount to effectively raise the yield or the real interest rate to the new buyer.

The RBA says wages will need to take off before they’ll want to raise interest rates. And to keep interest rates in the bond market down, it has been buying three-year bonds, which drives up the price of bonds. And simultaneously, this takes the interest rate down.

Normal people don’t need to know how the bond market engages with central banks. That’s a relief. But the bottom line is that the RBA here and the Fed in the USA and the ECB in Europe are prepared to take on the bond market to keep interest rates for home loan borrowers and small business at low levels, which will generate lots of jobs, higher wages and eventually inflation.

And when that inflation gets worryingly high, which should coincide with much higher wages and strong economic activity, well, that’s when interest rates will rise.

The RBA is predicting it will take until 2023 or maybe 2024, but that’s their best guess when their work will be done. But the economy might surprise the central bank and the rest of us and be stronger in the future than is currently guessed, I mean forecasted.

The minutes reveal the following about what might drive higher interest rates.

“The board’s judgment was that wages growth would be unlikely to be consistent with the inflation target earlier than 2024…[and] it was likely that wages growth would need to be sustainably above 3 per cent, which was well above its current level”. The AFR’s Matthew Cranston ran this by IFM chief economist Alex Joiner, who said wages growth above 3% equated to an unemployment rate of about 4% – “something that hasn’t occurred since just before the GFC.”

The taking away of JobKeeper and other key support measures as of March 28, will be the big issue for the Big Bank to take on board. And that’s where their call on rates and on our economic future will be seen to be right or wrong.

These actions will be a brake on growth, but the power of the economy, which currently is strong, could act to trump the negatives for growth that reducing government support will have.

The RBA is more negative on our future growth than I am (and the bond market is too) but if they’re proven wrong, they’ll have to turn on a dime (as the Yanks might say) and start raising interest rates.

I hope they’re wrong because rising interest rates will equate to a booming economy, creating jobs, profitable businesses, higher stock prices and wealthier Australians.

Interestingly, the Board currently wasn’t over-worried about house prices, which have spiked at the fastest rate in 17 years over February, but still are only around 2017 levels. Property prices fell after Bill Shorten scared property players before the last election in 2019 with his plans for changes to negative gearing and the capital gains tax.

On one hand, most of us with loans would love interest rates at these levels until 2024, but if that happens, our economy might be too weak to create jobs, boost profits and underpin rising stock prices as well as drive up our super returns. I hope the RBA Governor Phil Lowe and his board are wrong on their 2024 interest rate call. I think Dr Phil (and Treasurer Josh Frydenberg, who wants to shrink his forecasted $213.7 billion Budget Deficit) hopes he is too!