Statement by Philip Lowe, Governor:Decision. At its meeting today, the Board decided to maintain the current policy settings, including the targets of 10 basis points for the , the yield on the 3-year Australian Government bond, and the parameters of the Term Funding Facility and the government bond purchase program.
Graph of the Cash Rate Target
Outlook for Global Economy
The outlook for the global economy has improved over recent months. While the path ahead is likely to remain bumpy and uneven, there are better prospects for a sustained recovery than a few months ago.
Global trade has picked up, and commodity United States have seen longer-term bond yields increase considerably over the past month.. Even so, the recovery remains dependent on the health situation and significant fiscal and monetary support. Inflation remains low and below targets. The positive news on vaccines and the prospect of further necessary budgetary stimulus in the
This increase partly reflects a lift in expected inflation over the medium term to closer to central banks’ targets. Reflecting these, there have been similar movements in Australian bond markets. Changes in bond yields globally have been associated with volatility in other asset prices, including foreign exchange rates. In recent years, the of the range.
Australian Economic Recovery
In Australia, the economic recovery is well underway and has been. There has been substantial growth in employment and a welcome decline in the to 6.4 percent. Retail spending has been strong, and most households and businesses that had repayments have now recommenced repayments. The recovery is expected to continue, with the central scenario being for GDP to grow by 3½ percent between 2021 and 2022. GDP is expected to return to its end-2019 level by the middle of this .
Wage and Price Pressures
Wage andto remain so for some years. The economy is still operating with considerable spare capacity, and the unemployment rate remains higher than it has been for some years.
Further progress in reducing spare capacity is expected. Still, it will be long before the labor market is tight enough to generate wage increases consistent with achieving the inflation target.
In the central scenario, the unemployment rate will still be around 6 percent at the end of thisand 5½ percent in 2022. In underlying terms, inflation is expected to be 1¼ percent in 2021 and 1½ percent in 2022. CPI inflation is expected to rise temporarily because of the reductions.
The current monetary policy settings continue to help the economy by keeping financing costs very low, contributing to a lower exchange rate than otherwise, and supporting the supply of credit and household and business balance sheets. Together, supports the recovery in aggregate demand and the pick-up in employment.
Lending rates for most borrowers are at record lows, andacross Australia have increased recently. Housing credit growth to owner-occupiers has increased, but investor and business credit growth remain weak. Lending standards remain sound and must remain so in an environment of rising housing .
The Bank remains committed to the 3-year yield target and recently purchased bonds to support the target and will continue to do so as necessary. Also, bond purchases under the bond purchase program were brought forward thisto assist with the smooth functioning of the market.
The Bank is prepared to make further adjustments to its purchases in response to market conditions. Theissued a cumulative $74 billion of government bonds, and the states and territories have been purchased under the initial $100 billion program.
A further $100the completion of the initial program, and the Bank is prepared to do more if necessary. Authorized deposit-taking institutions have drawn $91 billion under the Term a further $94 billion. Since the start of 2020, the RBA’s balance sheet has increased by around $175 billion. The Board remains committed to maintaining highly supportive monetary conditions until its goals are achieved.
The Board will not increase the cash rate until inflation is sustainably within the 2 to 3 percent target range. For this to occur, wage growth will have to be materially higher than it is currently. to a tight labor market. The Board does not expect these conditions to be met until 2024 at the earliest.