The Reserve Bank of Australia (RBA) gave a dovish outlook to financial markets at its meeting on Tuesday. As was widely expected, it kept rates at near-zero levels and indicated they would remain at a low level for the near future.
In a statement after the meeting, RBA governor Philip Lowe said: “The economic recovery in Australia is stronger than earlier expected and is forecast to continue. The bank’s central scenario is for [gross domestic product] GDP to grow by 4.75% over this year and 3.5% over 2022. This outlook is supported by fiscal measures and very accommodative financial conditions.”
The RBA’s growth forecasts for 2021 are broadly in line with experts and for 2022, are slightly stronger than expectations. Robert Carnell, ING Think’s regional head of research, Asia Pacific, agreed that the RBA’s statement did have “some more upbeat language on the outlook for growth”.
Rates unlikely to change soon
In a statement soon after the RBA’s meeting, Carnell said: “These [RBA] forecasts are broadly in line with our house forecasts for 2021 growth (ING f 4.4% for 2021), but stronger than our forecast for 2022 (ING f 2.6%).”
Similarly, a report authored by National Australia Bank’s Tapas Strickland, released on Monday, had forecasted Australia’s GDP growth to be at 4.6% for 2021 and 2.4% for 2022.
AUD, ASX close in the red
The RBA also ruled out any possibility of increasing interest rates before 2024. In his statement, Lowe said: “It [RBA] will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range. This is unlikely to be until 2024 at the earliest.”
Strickland’s report had also stated that in Australia inflation expectations remain “near pandemic lows”. The report stated: “It is hard to see wages growth lifting to the 3% rate in the near term needed to have inflation sustainably at 2% to 3%. As such, the RBA is likely to continue to lag the [US] Fed in the normalisation cycle.”
After the RBA’s statement, the Australian dollar had slipped to US$0.7745. While it went up to an intraday high of US$0.7768, it lost steam towards the end of the day and came back down to US$0.7741 by 07:00 BST (UTC+1).