- CANBERRA, AAP – Last week’s subdued inflation figures ensured the Reserve Bank won’t be changing its view on the interest rate outlook any time soon.
The central bank will hold its monthly board meeting on Tuesday where it is more than likely to keep the cash rate, and other key policies, at a record low 0.1 per cent.
RBA governor Philip Lowe is expected to reiterate that interest rates won’t rise until inflation is back in the two to three per cent target band, an event it doesn’t see happening until 2024.
At this stage, and with the consumer price index posting an annual rate of 1.1 per cent in the March quarter and underlying measures of inflation equally benign, it would appear Dr Lowe’s prediction is on the money.
The Australian National University’s so-called “RBA shadow board”, made up of economists, former central bank board members and academics, believes the cash rate of 0.1 per cent remains appropriate.
It says the COVID-19 pandemic remains well contained domestically, which is showing up in steadily improving economic indicators, especially in the labour market.
“However, the vaccine rollout is behind schedule and thus proving costly for the economy overall,” it said in a statement.
At the same time, and despite improving statistics, there remains considerable slack in the labour market.
“It is unlikely that recent developments will lead to wage and price pressure in the near future,” it said.
Dr Lowe has previously said wages would need to be substantially above three per cent and the unemployment rate much lower than it is now to return inflation to the target band.
Annual wage growth was just 1.4 per cent at the end of 2020, while the jobless rate was 5.6 per cent in March.
Strong ANZ job advertising figures released on Monday suggest the unemployment rate could reach five per cent by the end of the year, but still above what is deemed to be full employment.
Treasury now estimates full employment at an unemployment rate of 4.5-5 per cent, but Dr Lowe has said it was “entirely possible” that it could be in the threes.
Before the result of the board meeting, the Australian Bureau of Statistics will release international trade and lending figures for March, while the weekly ANZ-Roy consumer confidence index is due.
RBA cash rate to stay at record low
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