No interest rate hike before 2024

Wednesday, 10 March 2021

Miji Michael March 10, 2021

The Reserve Bank of Australia governor Philip Lowe made it clear that recent speculation in financial markets that some central banks, including in Australia, may increase rates earlier than expected, was not an expectation that the RBA shared.

Governor Lowe stated that the Australian economic recovery is well under way and has been stronger than was earlier expected. However, the Australian economy’s recovering from the pandemic back to full employment and inflation sustainably within the RBA’s 2-3% target range was likely to be a long one.

Employment says Lowe has grown with a decline in the unemployment rate to 6.4 per cent. Retail spending has been strong with most households and businesses that had deferred loan repayments are now recommencing repayments. This recovery is expected to continue, with the central scenario being for GDP to grow by 3½ per cent over both 2021 and 2022.

Lowe made it clear that the Reserve Bank of Australia Board remains committed to maintaining highly supportive monetary conditions until its goals are achieved. So they will not increase the cash rate until actual inflation is sustainable within their target range. For this to occur, wages growth will have to be materially higher than it is currently. This says Lowe 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.

In the meantime their current monetary policy settings are continuing to help the economy by keeping financing costs very low. This has contributed to a lower exchange rate that supports the supply of credit and household and business balance sheets. This means that lending rates for most borrowers are at record lows with house prices across Australia increasing in recent times.

Housing credit growth to owner-occupiers has picked up, says governor Lowe, but investor and business credit growth remain weak. However, lending standards remain sound which is important in an environment of rising housing prices and low interest rates.

Leave your comment