At its meeting today, the Board decided to:
- retain the April 2024 bond as the bond for the yield target and retain the target of 10 basis
- continue purchasing government bonds after the completion of the current bond purchase program in
early September. These purchases will be at the rate of $4 billion a week until at least mid
- maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement
balances of zero per cent.
These measures will provide the continuing monetary support that the economy needs as it transitions
from the recovery phase to the expansion phase. The Board is committed to achieving the goals of full
employment and inflation consistent with the target. Today’s decisions, together with those taken
previously, have the economy on a path to achieve those objectives.
The economic recovery in Australia is stronger than earlier expected and is forecast to continue. The
outlook for investment has improved and household and business balance sheets are generally in good
shape. National income is also being supported by the high prices for commodity exports. Domestic
financial conditions are very supportive and the exchange rate has depreciated a little recently. One
near-term uncertainty is the effect of the recent virus outbreaks and the lockdowns. But the experience
to date has been that once outbreaks are contained and restrictions are eased, the economy bounces back
The labour market has continued to recover faster than expected. The unemployment rate declined further
to 5.1 per cent in May and more Australians have jobs than before the pandemic. There has also
been a welcome decline in underemployment and labour force participation is around record highs. Job
vacancies are high and more firms are reporting shortages of labour, particularly in areas affected by
the closure of Australia’s international borders.
Despite the strong recovery in jobs and reports of labour shortages, inflation and wage outcomes remain
subdued. While a pick-up in inflation and wages growth is expected, it is likely to be only gradual and
modest. In the central scenario, inflation in underlying terms is expected to be
1½ per cent over 2021 and 2 per cent by mid 2023. In the short term, CPI
inflation is expected to rise temporarily to about 3½ per cent over the year to the June
quarter because of the reversal of some COVID-19-related price reductions a
Maintaining the target of 10 basis points for the April 2024 bond will continue to keep interest
rates low at the short end of the yield curve and support low funding costs in Australia. The yield on
this bond is consistent with the target and the RBA remains prepared to operate in the market to achieve
The bond purchase program is playing an important role in supporting the Australian economy. The Bank
will continue to purchase bonds given that we remain some distance from the inflation and employment
objectives. However, the Board is responding to the stronger-than-expected economic recovery and the
improved outlook by adjusting the weekly amount purchased. It will conduct a further review in November,
allowing the Board to respond to the state of the economy at that time.
The final draw-downs under the Term Funding Facility were made in late June. In total,
$188 billion has been drawn down under this facility, which has contributed to the Australian
banking system being highly liquid. Given that the facility is providing low-cost fixed-rate funding for
3 years, it will continue to support low borrowing costs until mid 2024.
Housing markets have continued to strengthen, with prices rising in all major markets. Housing credit
growth has picked up, with strong demand from owner-occupiers, including first-home buyers. There has
also been increased borrowing by investors. Given the environment of rising housing prices and low
interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important
that lending standards are maintained.
The Board remains committed to maintaining highly supportive monetary conditions to support a return to
full employment in Australia and inflation consistent with the target. It will not increase the cash
rate until actual inflation is sustainably within the 2 to 3 per cent target range. The
Bank’s central scenario for the economy is that this condition will not be met before 2024. Meeting
it will require the labour market to be tight enough to generate wages growth that is materially higher
than it is currently.