RBA Happy to Wait and See

By Glenn Dyer | More Articles by Glenn Dyer

As expected the Reserve Bank has left the official cash rate unchanged at 0.1% and again emphasised that it is prepared to wait until it sees stronger wages and inflation.

The RBA cut the cash rate to its current rate in November with a 15 basis point reduction to help boost the nation’s economic recovery from the coronavirus pandemic and support job creation.

The unemployment rate improved to 5.8% in February, down from a peak of 7.5% in July.

“The Board is committed to maintaining highly supportive monetary conditions until its goals are achieved.

“The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently.

“This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest,” Tuesday’s repeated comments made previously in statements and speeches by Governor Philip Lowe.

“The rollout of vaccines is supporting the recovery of the global economy, although the recovery is uneven.

“While there are still considerable uncertainties regarding the outlook, the central case has improved. Global trade has picked up and commodity prices are mostly higher than at the start of the year. Inflation remains low and below central bank targets.

“The economic recovery in Australia is well under way and is stronger than had been expected. The unemployment rate fell to 5.8 per cent in February and the number of people with a job has returned to the pre-pandemic level.

“GDP increased by a strong 3.1 per cent in the December quarter, boosted by a further lift in household consumption as the health situation improved. The recovery is expected to continue, with above-trend growth this year and next. Household and business balance sheets are in good shape and should continue to support spending.

“Nevertheless, wage and price pressures are subdued and are expected to remain so for some years. The economy is operating with considerable spare capacity and unemployment is still too high.

“It will take some time to reduce this spare capacity and for the labour market to be tight enough to generate wage increases that are consistent with achieving the inflation target.

“In the short term, CPI inflation is expected to rise temporarily because of the reversal of some COVID-19-related price reductions. Looking through this, underlying inflation is expected to remain below 2 per cent over the next few years.”

And on rising house prices – seemingly no worries.

“Housing markets have strengthened further, with prices rising in most markets. Housing credit growth to owner-occupiers has picked up, with strong demand from first-home buyers.

“In contrast, investor credit growth remains subdued. Given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.”

But no crackdown.


Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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