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Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)
The Reserve Bank of Australia has left the cash rate at a record low 0.1 per cent and does not expect conditions to warrant an increase before 2024.
The RBA held its monthly board meeting on Tuesday, against the backdrop of speculation that a rate hike could happen in 2023 or even earlier.
“The board remains committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target,” RBA governor Philip Lowe said.
The bank will not increase the cash rate until actual inflation is sustainably within the two to three per cent target range.
This will require the labour market to be tight enough to generate wages growth materially higher than existing levels.
“The bank’s central scenario for the economy is that this condition will not be met before 2024,” Dr Lowe said.
His language has firmed slightly from previous assertions a rate rise would not occur until 2024 at the earliest.
Economists believe the strength of the economy, particularly in the labour market, could see an earlier rate hike.
The board agreed to continue to target the April 2024 three-year government bond to keep near-term funding costs low, rather than changing to the new benchmark of November 2024.
Fixed-rate loans tend to be set against three-year bonds, while the cash rate influences variable rate mortgages.
“The yield on this bond is consistent with the target and the RBA remains prepared to operate in the market to achieve the target,” Dr Lowe said.
The central bank will also wind back its bond purchasing program to a rate of $4 billion a week once its $100 billion scheme exhausts in early September.
“The bank will continue to purchase bonds given that we remain some distance from the inflation and employment objectives,” Dr Lowe said.
“However, the board is responding to the stronger-than-expected economic recovery and the improved outlook by adjusting the weekly amount purchased.”
It will review the bond program in November.
Dr Lowe also noted housing prices continued to strengthen, with strong credit demand from owner-occupiers, including first-home buyers, as well as increased borrowing by investors.
“Given the environment of rising housing prices and low interest rates, the bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained,” he said.