Interest Rate in Australia

Australia - Interest Rate

RBA stands pat in May

At its monetary policy meeting on 4 May, the Reserve Bank of Australia (RBA) decided to keep the cash rate unchanged at the all-time low of 0.10%. It also left the target for three-year government bond yields at around 0.10%, and announced it will consider whether to retain the current yield target and/or to undertake further bond purchases at its July meeting.

The decision came amid upbeat data suggesting that the recovery is well underway and stronger than previously expected, boosted by sizable fiscal and monetary stimulus. The Bank noted that the labor market has strengthened significantly, with the number of employed now exceeding pre-pandemic levels. Meanwhile, the global recovery is progressing, underpinned by the rollout of vaccines, although it remains uneven due to bumpy vaccination campaigns in some countries and the outlook continues to be surrounded by pandemic-related uncertainty. All told, the Bank raised its growth forecasts, and now expects the economy to expand 4.8% and 3.5% in 2021 and 2022, respectively. On the price front, recently released figures for Q1 show that inflation remained subdued in the period, and although the RBA projects a spike in prices in the second quarter due to a low base effect, it sees inflation averaging 1.5% this year and not reaching 2.0% until mid-2023.

The Bank kept its dovish tone in its communiqué, reiterating that it expects to maintain the cash rate at its current all-time low until the labor market returns to full employment, wage growth accelerates substantially and actual inflation is comfortably within its 2.0–3.0% target range, which it does not see until 2024. Additionally, it added that it will monitor the evolution of housing prices—currently on the rise—and borrowing costs in order to maintain favorable lending conditions.

The next monetary policy meeting is scheduled for 1 June.

Commenting on the decision, Robert Carnell, head of research for the Asia-Pacific region at ING, stated:

“In recent months, the Reserve Bank of Australia (RBA) has been very clear with its message that it is not in any hurry to withdraw stimulus from the economy, even though some reports on the recovery have been stronger than expected. Today's statement on the monetary policy decision echoes the tone of its recent rhetoric.”

FocusEconomics panelists forecast the cash rate to end 2021 at 0.10% and 2022 at 0.12%.