— Finance

Cash Rate On Hold at 0.10%

At its meeting today, the Board decided to maintain the current policy settings, including the targets of 10 basis points for the cash rate, the yield on the 3-year Australian Government bond, and the parameters of the Term Funding Facility and the government bond purchase program.


Outlook for Global Economy

The outlook for the global economy has improved over recent months due to the ongoing rollout of vaccines. While the path ahead will likely remain bumpy and uneven, there are better prospects for a sustained recovery than a few months ago.

Global Trade

Global trade has picked up, and commodity prices have increased over recent months. The recovery rdependson the health situation and significant fiscal and monetary support. Inflation remains low and below central bank targets. The positive news on vaccines and the prospect of further important fiscal stimulus in the United States have seen longer-term bond yields increase considerably over the past month. This increase partly reflects a lift in expected inflation over the medium term to closer to central banks’ targets. Reflecting these global developments, there have been similar movements in Australian bond markets. Changes in bond yields globally have been associated with volatility in other asset prices, including foreign exchange rates. The Australian dollar has remained at the upper end of the range in recent years.

Cash Rate

Australian Economic Recovery

In Australia, the economic recovery is well underway and has been stronger than expected. There has been substantial growth in employment and a welcome decline in the unemployment rate to 6.4 percent. Retail spending has been strong, and most households and businesses that had deferred loan repayments have now recommenced repayments. The recovery is expected to continue, with the central scenario being for GDP to grow by 3½ percent between 2021 and 2022. GDP is expected to return to its end-2019 level by the middle of this year.

Wage and Price Pressures

Wage and price pressures are subdued and are expected to remain so for some years. The economy is still operating with considerable spare capacity, and the unemployment rate remains higher than it has been for some years. Further progress in reducing excess capacity is expected. Still, it will be some time before the labor market is tight enough to generate wage increases consistent with achieving the inflation target.

In the central scenario, the unemployment rate will still be around 6 percent at the end of this year and 5½ percent in 2022. In underlying terms, inflation is expected to be 1¼ percent in 2021 and 1½ percent in 2022. CPI inflation is expected to rise temporarily because of the reversal of some COVID-19-related price reductions. The current monetary policy settings continue to help the economy by keeping financing costs very low, contributing to a lower exchange rate than otherwise, and supporting the supply of credit and household and business balance sheets.

Katie Axon

After leaving the corporate world to pursue my dreams, I started writing because it helped me organize and express myself. It also allowed me to connect with people who share my passion for art, travel, fashion, technology, health, and food. I currently write on vexsh, a site focused on sharing and discovering what it means to be a creative, passionate person living in today's digital age.

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