RBA undeterred from low rate outlook

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

The Reserve Bank is sticking to the script of maintaining low interest rates for a number of years in its quest to drive unemployment down even further, while returning the rate of inflation to some normality.

The minutes of the Reserve Bank board's April gathering released on Tuesday showed little deviation from governor Philip Lowe's post-meeting statement that left the cash rate unchanged at a record low 0.1 per cent.

"The board remained committed to doing what it reasonably could to support the Australian economy, and would maintain highly supportive monetary conditions until its goals were achieved," the minutes say.

The board reiterated it will not increase the cash rate until actual inflation is sustainably within the two to three per cent target range.

This will need wages growth to be materially higher that it is currently, which will require significant gains in employment and a return to a tight labour market.

"The board does not expect these conditions to be met until 2024 at the earliest," the minutes released on Tuesday say.

It again said a move to negative interest rates is "extraordinarily unlikely".

Commonwealth Securities chief economist Craig James sees the RBA taking a "wait-and-see mode", with the next major event being March quarter inflation figures on April 28.

"The bank still believes that the pre-conditions for higher rates won't be achieved until 2024. This resolve will be tested by the March quarter inflation data," Mr James said.

The RBA expects the annual consumer price index to rise temporarily to around three per cent around the middle of the year as a result of the reversal of some pandemic-related price reductions.

Annual CPI was just 0.9 per cent in the December quarter.

But in terms of the more interest-rate sensitive rate of underlying inflation, the RBA expects this to remain below two per cent over both 2021 and 2022.

Since the April meeting, the unemployment rate has fallen even further to 5.6 per cent as of March from 5.8 per cent the previous month.

In February, the RBA did forecast the jobless rate being 6.5 per cent at the end of June.

Even so, Dr Lowe wants to see a jobless rate in the low fours.

Meanwhile, confidence among Australians barely changed in the past week as the potential benefits from the unemployment rate were offset by concern over the COVID-19 vaccine rollout.

The weekly ANZ-Roy Morgan consumer confidence index eased just 0.1 per cent after a lofty 5.9 per cent rise in the previous week, remaining above its long-run average.

Compared to a year ago when the economy was entering the depths of recession, confidence a pointer to future household spending was 35.4 per cent higher.

ANZ head of Australian economics David Plank was surprised the drop in the unemployment in last week's labour force data didn't have more of a positive impact on confidence.

"Perhaps the good news on employment offset any fallout from the vaccine disappointment," Mr Plank said.

A revamped vaccination rollout plan is expected to be released on Thursday when the national cabinet meets for a second time this week after the previous strategy was thrown into disarray by restrictions being put on the AstraZeneca treatment.

The AstraZeneca vaccine is now only recommended for people over 50 after cases of blood-clotting both overseas and in Australia in younger people, who have to wait for their Pfizer jabs later in the year.