As widely expected, the Reserve Bank left official interest rates unchanged at the historic low of 0.1 per cent when it met for the second time this year on Tuesday.
The RBA Board said it would not increase the cash rate until the actual inflation rate was sustainably within the 2-3 per cent range, which it did not expect to happen until at least 2024.
At its March meeting, the RBA Board opted to maintain the current policy settings, 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.
In a statement, RBA Governor Philip Lowe said the outlook for the global economy had improved over recent months due to the ongoing rollout of vaccines and while the path ahead is likely to remain bumpy and uneven, “there are better prospects for a sustained recovery than there were a few months ago”.
“Global trade has picked up and commodity prices have increased over recent months,” Dr Lowe said.
“Even so, the recovery remains dependent on the health situation and on significant fiscal and monetary support.”
He said inflation remained low and below the central bank’s targets.
The RBA said lending rates for most borrowers were currently at record lows and housing prices across Australia had increased recently and although housing credit growth to owner-occupiers had picked up, investor and business credit growth remained weak.
“Lending standards remain sound and it is important that they remain so in an environment of rising housing prices and low interest rates,” Dr Lowe said.
Dr Lowe said the economic recovery in Australia was well under way and had been stronger than initially expected, with growth in employment and a welcome decline in the unemployment rate to 6.4 per cent.
Retail spending remained strong and the majority of households and businesses that had deferred loans had now recommenced repayments.
“The recovery is expected to continue, with the central scenario being for GDP to grow by 3.5 per cent over both 2021 and 2022. GDP is expected to return to its end-2019 level by the middle of this year,” he said.
He noted that wage and price pressures were still subdued and “expected to remain so for some years”.
The unemployment rate was forecast to remain around 6 per cent at the end of this year and 5.5 per cent at the end of 2022, with inflation expected to be 1.25 per cent over 2021 and 1.5 per cent over 2022 in underlying terms.
CPI inflation is expected to rise temporarily because of the reversal of some COVID-19-related price reductions.
Dr Lowe said the current monetary policy settings were continuing to help the economy by keeping financing costs very low, contributing to a lower exchange rate than otherwise, and supporting the supply of credit and household and business balance sheets.
“The Board remains 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,” Dr Lowe said.
“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.”