The Reserve Bank has again opted to maintain its current policy settings at its monthly board meeting, including keeping the official cash rate at the historic low of 10 basis points.
The RBA reiterated that it had no plans to increase the cash rate until the actual inflation rate is sustainably within the 2-3 per cent range, which it again said was not likely to occur until 2024 at the earliest.
At its June meeting, the RBA also said it would keep other current policy settings in place, in including the yield on the three-year Australian Government bond, as well as the parameters of the government bond purchase program; and the rate of zero per cent on exchange settlement balances.
In a statement accompanying the announcement, Reserve Bank Governor Dr Philip Lowe said the global economy was continuing to recover from the pandemic and the outlook for the remainder of this year and 2022 was for strong growth.
“The recovery remains uneven, though, and some countries are yet to contain the virus,” Dr Lowe said.
He said that global trade in goods has picked up strongly, and commodity prices are mostly higher than at the start of the year, but noted inflation in underlying terms remained low and below central bank targets.
Today’s announcement follows the release of yesterday’s RBA Cash Rate Survey by Finder, in which 40 experts and economists unanimously and correctly predicted the official cash rate would remain steady this month
HOUSING MARKETS GAIN STRENGTH
The RBA noted that housing markets have strengthened further, with prices rising in all major markets.
It also said credit growth had picked up, with strong demand from owner-occupiers, especially first-home buyers, as well as increased borrowing by investors.
“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,” Dr Lowe said.
As foreshadowed last month, in July, the board will consider whether to retain the April 2024 bond as the target bond for the three-year yield target or to shift to the next maturity, which is the November 2024 bond.
ECONOMY RECOVERING STRONGER AND EARLIER THAN EXPECTED
The RBA said economic recovery in Australia had been stronger than earlier expected and was forecast to continue.
Its central scenario is for GDP to grow by 4.75 per cent over the remainder of this year and 3.5 per cent over 2022.
“This outlook is supported by fiscal measures and very accommodative financial conditions,” Dr Lowe said.
“An important ongoing source of uncertainty is the possibility of significant outbreaks of the virus, although this should diminish as more of the population is vaccinated.”
The board also said it was committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target.
It reiterated it had no plans to increase the cash rate until actual inflation is sustainably within the two to three per cent target range.
“For this to occur, the labour market will need to be tight enough to generate wages growth that is materially higher than it is currently,” Dr Lowe said.
“This is unlikely to be until 2024 at the earliest.”