The Reserve Bank of Australia has once again opted to leave interest rates at the historic low of 10 basis points at its monthly meeting on Tuesday.
The RBA Board also maintained that it has no plans to increase the cash rate until the actual inflation rate is sustainably within the 2-3 per cent range, which it reiterated is not likely to occur until 2024 at the earliest.
At its April meeting, the RBA Board opted to keep other current policy settings in place, including the targets of 10 basis points for the cash rate and the yield on the three-year Australian Government bond, as well as the parameters of the Term Funding Facility and the government bond purchase program.
The RBA Board noted that housing markets have strengthened further, with prices rising in all major markets.
It said housing credit growth has picked up, with strong demand from owner-occupiers, especially first-home buyers.
“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,” Reserve Bank Governor Dr Philip Lowe said in a statement.
Dr Lowe said the recovery in Australia has been stronger than expected and is forecast to continue.
“This recovery is especially evident in the strong growth in employment, with the unemployment rate falling further to 5.6 per cent in March and the number of people with a job now exceeding the pre-pandemic level,” he said.
The Bank has also revised its forecast for GDP growth up further, with growth of 4.75 per cent expected over 2021 and 3.5 per cent over 2022.
The unemployment rate is expected to continue to decline, to be around 5 per cent at the end of this year and around 4 per cent per cent at the end of 2022.
Despite the strong recovery in economic activity, the recent CPI data confirmed that inflation pressures remain subdued in most parts of the Australian economy.
Dr Lowe said a pick-up in inflation and wages growth was expected, “but it is likely to be only gradual and modest”.
“In the central scenario, inflation in underlying terms is expected to be 1.5 per cent in 2021 and 2 per cent in mid 2023,” he said.
The Board said the global economy was continuing to recover from the pandemic, with strong growth predicted for this year and next.
It also noted the global recovery remained uneven, with some countries yet to contain the virus.
It said global trade in goods has picked up strongly and most commodity prices were higher than at the start of the year but noted inflation remained low and below central bank targets.
“The Board is committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target,” Dr Lowe said.
“It will not increase the cash rate until actual inflation is sustainably within the 2 to 3 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. This is unlikely to be until 2024 at the earliest.”