RBA Sees First Rate Hike in 2024 as Wage Growth Sluggish
(Bloomberg) -- The Reserve Bank of Australia sounded an optimistic note on the economy, while maintaining that faster wages growth and inflation will take some time and the first interest-rate increase is unlikely before 2024.
“A rapid trajectory of recovery from the recent setback seems increasingly likely,” the central bank said Friday in its quarterly update of economic forecasts, predicting wage growth will accelerate to 3% and inflation hit the 2.5% midpoint of the RBA’s target by end-2023.
“Depending on the trajectory of the economy at that time, the board judges that this outcome could be consistent with the first increase in the cash rate being in 2024,” it said.
The Australian dollar edged down after the report and was trading at 73.95 U.S. cents at 12:15 p.m. in Sydney
The central bank’s assessment represents a further push back against market pricing for a tightening cycle to begin next year. The RBA did concede today that there was a plausible scenario in which wages and consumer prices grew faster than expected and a 2023 rate hike was needed, but dismissed the prospect of an increase in the next 12 months.
Wages are forecast to accelerate to 2.25% at the end of this year, reach 2.5% in 2022 and 3% in late 2023, today’s Statement on Monetary Policy said. Inflation was seen at 2.25% through to mid-2023 before edging up to 2.5% in December of that year.
Australia’s A$2 trillion economy ($1.5 trillion) is expected to have contracted last quarter after an outbreak of the delta variant of coronavirus forced authorities to impose strict lockdowns along the populous east coast.
But strong vaccine take-up has allowed for an earlier-than-expected reopening in Sydney and Melbourne, bolstering consumer and business confidence. Record-low rates and fiscal support have also boosted domestic demand.
Australia’s central bank, like counterparts around the world, is grappling with whether a recent acceleration in inflation is temporary, amid uncertainty over how long supply-chain disruptions will last and how labor markets will respond to a reopening of borders.
“In some other plausible scenarios, wages growth and inflation could be higher than implied by the central scenario,” the RBA said. “If this were to eventuate, an increase in the cash rate in 2023 could be warranted. However, in the board’s view, the latest data and forecasts do not warrant an increase in the cash rate in 2022.”
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