Reserve Bank eyes faster rebound from Covid-19 pandemic
A rapid recovery from Covid-19 lockdowns seems ‘increasingly likely’, according to the Reserve Bank.
A rapid economic recovery from Covid-19 lockdowns this year seems “increasingly likely”, according to the Reserve Bank in its quarterly Statement on Monetary Policy.
If the economy evolves in line with its central scenario, wages growth is expected to have edged up to around 3 per cent and underlying inflation would have only just reached the middle of the 2 to 3 per cent target band by the end of 2023, for the first time in seven years.
But while in his post-meeting press conference this week RBA Governor Philip Lowe was equivocal about the chance of official interest rate hikes starting in 2023 or 2024, he the Monetary Policy Statement has re-emphasised 2024 as the more likely start date for rate hikes.
“Depending on the trajectory of the economy at that time, the Board judges that this outcome could be consistent with the first increase in the cash rate being in 2024,” the Statement said.
Moreover, “many uncertainties remain” and the RBA is “committed to maintaining highly supportive monetary conditions” to achieve “full employment” and inflation “consistent with the target.”
“For inflation to be between 2 and 3 per cent on a sustainable basis, the labour market will need to be tighter and wages growth materially higher than they are at present,” the RBA said.
“The Board will not raise the cash rate until these criteria are met, and is prepared to be patient.”
The Statement noted that “in some other plausible scenarios, wages growth and inflation could be higher than implied by the central scenario”, saying that “If this were to eventuate, an increase in the cash rate in 2023 could be warranted.”
But the RBA pushed back against market pricing for rapid-fire interest rate hikes starting next year.
“However, in the Board’s view, the latest data and forecasts do not warrant an increase in the cash rate in 2022.”
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