November 5, 2021

RBA Remains Dovish, It's Too Late To Raise Interest Rates

 Examining the latest statement by the Central Bank of Australia (RBA) in the monetary policy statement (SoMP) released during the Asian session, it said the economy was recovering quickly from the contraction caused by the pandemic in the last quarter.

The central bank also acknowledged that inflation had returned to the 2-3%target track, two years earlier than expected thus forcing it to set aside its commitment to maintain its bond yield target at 0.1%.

While coronavirus closures have seen activity contract sharply in the third quarter, rapidly rising vaccination rates have allowed the economy to reopen and consumer spending to soar again.

Nonetheless, policymakers project that interest rates will not rise until 2024, but do not rule out the possibility for an increase in 2023 as the economy is heading for a recovery.

This follows a stipulation by the RBA that they need to see materially higher wage growth first in order to raise rates.

According to the RBA, wage growth is expected to increase by 3% or more annually to keep inflation within the target range. However, it is expected to be achieved by the end of 2023.

Meanwhile, the central bank also forecast 3% growth by the end of the year, slightly down from the 4% previously expected.

The RBA also raised its core inflation forecast to rise 2.25% by the end of the year, higher than the previous forecast only expected to reach that in 2023.