CANBERRA, AAP – The Reserve Bank has surprised no one with more upbeat expectations for Australia’s economic recovery.
But significant monetary support will continue, supporting the creation of wealth by home buyers who can bank on low interest rates for some years.
The latest statement on monetary policy released on Friday said monetary policy will need to remain “highly accommodative” for some time yet.
Australia’s GDP growth was faster than anticipated in the December quarter and is expected to have remained solid in the March quarter.
GDP growth is now forecast to be 4.75 per cent over 2021 and 3.5 per cent over 2022.
The unemployment rate is expected to fall further, reaching around five per cent by the end of this year and 4.5 per cent by mid-2023.
The RBA said it would continue to closely monitor trends in borrowing.
“In this environment of strong demand for housing, rising prices and low interest rates, it is important that lending standards are maintained,” the RBA said.
Keeping any concerns in check, investor credit has also been growing but at a slower pace than credit to owner-occupiers.
The central bank saw little damage from the end of the JobKeeper program and various social assistance measures.
“While these programs have largely expired, strong growth in employment has broadly cushioned the effect of the winding down of these programs on household income,” RBA said.
The RBA board had previously indicated that it would consider extending the Term Funding Facility for banks if there were a marked deterioration in funding and credit conditions in the Australian financial system.
“Financial markets are operating well, so an extension is not called for,” the statement said.
Banks have drawn $102 billion under the facility so far and a further $98 billion is currently available.
Given the facility provides funding for three years, the RBA expects it will continue to help keep funding costs in Australia low until mid 2024.
“Dwelling investment has also been boosted – and possibly brought forward – by accommodative monetary policy and fiscal support, including the HomeBuilder subsidy and various state government programs.”
The RBA board left the cash rate, and its suite of other policies, at a record low 0.1 per cent earlier this week.
The latest statement reiterated central bank governor Philip Lowe’s intention to keep a lid on the cash rate until inflation is sustainably within the two to three per cent inflation target.
“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,” the statement said.
The consumer price index is expected to temporarily spike during the June quarter this year because of the reversal of some COVID-19 era price reductions.
Underlying inflation, which guides policy decisions, is expected to remain subdued at 1.5 per cent in 2021 and 2.0 per cent by mid-2023.