The Australian economy might be riding out the coronavirus better than we’d thought it would but the Reserve Bank says it might take until the year 2025 until we see a lift to the record-low interest rates.
This week the RBA governor Philip Lowe told the National Press Club it was important to maintain the economic boost that was being provided by 0.1 per cent interest rates and government bond purchases.
The key for Dr Lowe is inflation, which he wants to see jump to a level between 2-3 per cent before lifting the official cash rate, but that won’t happen until the economy starts seeing some real wages growth.
“It is difficult to determine exactly when this condition might be met but we do not expect it to be before 2024 and it is possible that it will be later than this,” Dr Lowe said.
“The cash rate will be maintained at 10 basis points for as long as is necessary.
“So the message is this: interest rates are going to be low for quite a while yet.”
The economy is definitely recovering quicker than forecasts had it pegged back in darker COVID times, and unless the pandemic takes another bad turn in the country the economy is expected to grow 3.5 per cent over 2021 and 2022.
One of the biggest problems holding back growth is the sharp reduction to immigration and population growth while international borders remain closed.
Despite this, there are encouraging signs regarding unemployment and household income, which is being boosted by economic stimulus measures like the JobKeeper payments.
But it the wages growth that’s key here and the RBA expects that to slowly creep up while still remaining below that 2 per cent mark by the end of 2022, and that’s the main reason we are likely to see interest rates stay at 0.1 per cent well beyond that.
