- The cash rate remains at 0.10%
- GDP expected to decline during September, given the lockdowns
- Will continue to monitor house prices
During its monthly meeting today, the Reserve Bank of Australia (RBA) unsurprisingly announced it will maintain the cash rate target of 10 basis points – or 0.10%.
While acknowledging the economic recovery in Australia was stronger than what had been earlier expected, the recent outbreaks of the virus, in particular in Sydney, has interrupted the recovery.
The RBA subsequently expects GDP to decline in the September quarter.
An extended lockdown could result in two consecutive negative quarters – meaning Australia faces the prospect of a double-dip recession in a year after not experiencing one for almost three decades, a record in the developed world.
Despite this, the RBA has not changed its plan to scale back its monetary stimulus, noting that once outbreaks are contained, the economy bounces back quickly.
“Prior to the current virus outbreaks, the Australian economy had considerable momentum and it is still expected to grow strongly again next year,” said RBA Governor Dr Philip Lowe in his staple post-meeting statement.
“The economy is benefiting from significant additional policy support and the vaccination program will also assist with the recovery.”
Dr Philip Lowe, RBA Governor
The RBA concedes the economic outlook for the next few months is uncertain as it depends on containment measures.
Overall, the RBA expects the economy to grow by just over 4% over 2022 and 2.5% in 2023. It should be noted this forecast is based on most Australians being fully vaccinated and a gradual opening of international borders from mid-2022
Despite a potential slight increase in the unemployment rate during the short term due to the lockdowns, the RBA expects unemployment to trend downwards to a rate of 4% by the end of 2023. This is extraordinary, given most economists agree the natural rate of unemployment is about 5%.
No mention was made in the statement, however, of underemployment, which is likely to have increased due to the lockdowns.
Dr Lowe said housing markets continue to strengthen, noting prices are still rising in all the major markets.
“Housing credit growth has picked up, with strong demand from owner-occupiers, including first-home buyers. There has also been increased borrowing by investors.”
However, he has warned prices are being watched carefully by the RBA – despite reiterating that the central bank “should not” interfere with house prices.
“Given the environment of rising housing prices and low interest rates, the Bank is monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.”
