CANBERRA, AAP – Reserve Bank governor Philip Lowe gets the opportunity to expand on his views of the economic outlook and interest rates in his first public address of the year.
Dr Lowe will deliver a speech to the National Press Club in Canberra on Wednesday, a day after the central bank board left its key interest rates at a record low 0.1 per cent for another month.
In his post-meeting statement, Dr Lowe said Australia’s economic recovery is well under way and stronger than earlier expected.
The Reserve Bank’s central scenario is for economic growth to now return to its pre-pandemic level by the middle of the year and grow by 3.5 per cent over both 2021 and 2022.
But at 6.6 per cent, the unemployment rate remains higher than it has been for the past two decades and is still expected to be around six per cent at the end of this year and 5.5 per cent at the end of 2022, which is above its pre-pandemic level.
Wages and inflation also remain subdued.
But Dr Lowe reiterated the board will not increase the cash rate until actual inflation is sustainably within the two to three per cent target range.
“For this to occur, wages growth will have to be materially higher than it is currently,” Dr Lowe said.
“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, a year later than it had previously envisaged.
“Its anticipation that interest rates will not rise from current very low levels for a number of years should provide businesses and households with greater confidence to invest and spend,” Ai Group chief executive Innes Willox said.
The central bank also announced earlier than economists had expected that it will extend its bond-buying program beyond mid-April, and when it will start purchasing a further $100 billion in federal and state government bonds.
This quantitative easing (QE) program aims to keep long-term market interest rates, and in turn borrowing rates, low.
The governor is also due to address the House of Representatives economics committee on Friday and when the Reserve Bank releases its quarterly statement on monetary policy.