Reserve Bank of Australia reiterates no cash rate rise until 2024

The Reserve Bank says ‘considerable uncertainty’ remains about the timing and pace of the economic recovery.

The Reserve Bank says there remains “considerable uncertainty” about the timing and pace of the economic recovery. Picture: Joel Carrett

The Reserve Bank has maintained its commitment to highly-supportive monetary conditions to achieve a return to full employment and inflation consistent with its target.

In the minutes of its September board meeting, the central bank reiterated that it won’t lift the cash rate from a record low of 10 basis points until actual inflation is sustainably within the 2 to 3 per cent target range.

Its central scenario for the economy is that this condition will not be met before 2024.

“Meeting this condition will require the labour market to be tight enough to generate wages growth that is materially higher than it was at the time of the meeting,” the minutes said.

The outbreak of the Delta variant had “interrupted” Australia’s economic recovery in a “more severe” way than expected a month earlier.

The outbreak of the Delta variant had “delayed, but not derailed”, the recovery.

But GDP was expected to decline materially in the September quarter and the unemployment rate was expected to rise, notwithstanding an expected rebound as restrictions are eased.

However, there was “considerable uncertainty” about the timing and pace of the recovery, which was likely to be slower than experienced earlier in 2021.

Private demand had increased solidly in the June quarter, but the spread of the Delta variant in NSW and Victoria had “set back the recovery and created uneven conditions” across states and industries.

“Much would depend on the health situation and the easing of restrictions on activity,” the minutes said. “In the central scenario, the economy would return to growth in the December quarter and to its pre-Delta path in the second half of 2022.”

Wages growth and underlying inflation were expected to pick up gradually as the economy recovers.

As a result, progress towards the Reserve Bank’s goals was likely to take longer and was less assured.

Thus members judged that a modification to the previously announced plans was appropriate.

After considering keeping its bond purchases at $5bn a week or cutting them to $4bn as planned but extending the period of its buying at that level until February, the RBA chose the latter path.

It considered the fact that a number of other central banks are tapering their bond purchases, and $4bn a week would expand its balance sheet faster relative to the stock of bonds outstanding than that of many other central banks, and saw “value in providing greater clarity beyond November”.

Members noted that fiscal policy is the more appropriate policy instrument for dealing with a temporary and sharp reduction in private sector incomes, and noted that fiscal responses by the Australian government and the state and territory governments in supporting households and business.

“While acknowledging that monetary policy can do little more to offset this type of temporary shock to aggregate demand, members recognised that the outbreak of the Delta variant was delaying the recovery and had added to the uncertainty about the future,” the minutes said.