RBA Statement on Monetary policy - repeats no rate hike until 2024 at earliest

Author: Eamonn Sheridan | Category: Central Banks

Reserve Bank of Australia SoMP 7 May 2021 

Summary Headlines via Reuters (bolding mine)

  • economy beating forecasts but policy needs to remain highly accommodative
  • will not raise rates until actual inflation in target range, unlikely until 2024
  • raises growth forecasts, GDP expected to have reached pre-pandemic levels in q1 2021
  • sees unemployment June 2021 at 5.25%, Dec 2021 at 5.0%, Dec 2022 at 4.5%, June 2023 at 4.5%
  • sees underlying inflation June 2021 at 1.5%, Dec 2021 at 1.5%, Dec 2022 at 1.75%, June 2023 at 2.0%

  • sees June 2021 GDP at 9.25%, Dec 2021 at 4.75%, Dec 2022 at 3.5%, June 2023 at 3%
  • sees wage growth June 2021 at 1.5%, Dec 2021 at 1.75%, Dec 2022 at 2.25%, June 2023 at 2.25%
  • wage growth has been especially slow, expected to remain low
  • will be "some years" before wage growth fast enough to lift inflation to target
  • end of jobkeeper losses to be more than offset by labour demand overall
  • baseline scenario assumes vaccinations pick up in 2h, borders reopen in early 2022
  • upside scenario sees unemployment at 3.75% by mid-2023, core inflation at 2.25%
  • border closure had limited overall impact so far, could push up wages if extended
  • household consumption and savings an important source of uncertainty
  • boost to household incomes, wealth to offset drag from slow population growth
  • closely monitoring home lending to ensure standards are maintained
  • level of AUD broadly consistent with fundamentals

RBA forecasts the jobless rate to 4.5% and inflation to 2% in June of 2023 and yet still saying no rate hike until the following year. I'll put that down to the Bank allowing the target to be overshot (or undershot on u/e if you prefer) for a period before a hike. We'll see. 

Also, some commentary in there on wage growth (or lack of it if you prefer). Saying extended border closures would support wages. Earlier today we had the trade minister saying borders would likely be closed until the middle of next year at least. 
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