Record low cash rate likely to remain in place until 2024: RBA
THE Reserve Bank of Australia has kept the official cash rate at a historic low and extended its bond-buying program in response to the Delta outbreak, as it says the highly infectious variant of the Covid-19 virus had caused the country’s economic recovery to lose momentum.
On Tuesday, the RBA reiterated it would not increase the cash rate – the interest rate on unsecured overnight loans between banks – from 0.1 per cent until actual inflation was sustainably within the 2-3 per cent target range, which it did not expect to happen before 2024.
“Meeting this condition will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently,” governor Philip Lowe said.
“Prior to the Delta outbreak, the Australian economy had considerable momentum.
“The recovery in the Australian economy has, however, been interrupted by the Delta outbreak and the associated restrictions on activity.
“GDP is expected to decline materially in the September quarter, and the unemployment rate will move higher over coming months.”
The Delta “setback” was expected to be only temporary, he said, and would delay but not derail Australia’s economic recovery.
“As vaccination rates increase further and restrictions are eased, the economy should bounce back,” Dr Lowe said.
“In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-delta path in the second half of next year.” While the RBA has pulled back bond buying from $5bn per week to $4bn per week from this month, the program has been extended until at least February, Dr Lowe said.
He said the purchases were providing substantial and ongoing support to the economy, and the extension reflected the delay in the recovery and the increased uncertainty surrounding the Delta outbreak.
Commsec chief economist Craig James said the RBA board would continue to do everything in its power to support the Australian economy throughout the recovery and expansion phases.
“The stimulative conditions will provide support for the sharemarket,” Mr James said.
“Growth-focused and highyielding stocks will be favoured over banks and safe-haven sectors.”