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- There were no surprises from the Reserve Bank of Australia today as it held interest rates at a historic low of 0.1 per cent ahead of this month’s Federal Budget
- RBA Governor Philip Lowe said the bank is not yet considering lifting the cash rate ahead of its three-year target outlined late last year
- This is despite Australia’s economy recovering quicker than expected, with the outlook for long-term growth strong
- The economic recovery is underpinned by strong growth in employment, with Australia’s unemployment rate at 5.6 per cent in March
- This means more people have a job now than did before the pandemic struck in 2020
- Nevertheless, the RBA said recent consumer price index data shows that inflation pressure is still subdued in most parts of the Australian economy
There were no surprises from the Reserve Bank of Australia today as it held interest rates at a historic low of 0.1 per cent ahead of this month’s Federal Budget.
RBA Governor Philip Lowe said though Australia’s economic recovery has been stronger than expected, the bank is not yet considering lifting the cash rate ahead of its three-year target outlined late last year.
“The global economy is continuing to recover from the pandemic and the outlook is for strong growth this year and next,” the Governor said.
“The recovery remains uneven, though, and some countries are yet to contain the virus.”
He said thanks to positive sentiment around vaccines and major fiscal stimulus in the U.S., sovereign bond yields have been steady over the past few weeks and inflation expectations have lifted to be closer to central banks’ targets.
In Australia, the country’s economic recovery is particularly evident through its strong growth in employment, with the unemployment rate falling to 5.6 per cent in March — meaning more people have a job now than did before the pandemic struck last year.
“The unemployment rate is expected to continue to decline, to be around 5 per cent at the end of this year and around 4.5 per cent at the end of 2022,” Governor Lowe said.
As such, the RBA’s GDP growth expectations have been revised up even further, with 4.75 per cent GDP growth expected over 2021 settling to 3.25 per cent over 2022.
“A pick-up in business investment is expected and household spending will be supported by the strengthening in balance sheets over the past year,” he said.
Nevertheless, he said despite the economic recovery, recent consumer price index data shows that inflation pressure is still subdued in most parts of the Australian economy.
“A pick-up in inflation and wages growth is expected, but it is likely to be only gradual and modest,” he said.
Inflation is expected to temporarily rise above 3 per cent in the June quarter this year due to the reversal of some COVID-19-related price reductions. For the longer term, the RBA predicts inflation to be 2 per cent in mid-2023.
