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

The rollout of vaccines is supporting the recovery of the global economy, although the recovery is
uneven. While there are still considerable uncertainties regarding the outlook, the central case has
improved. Global trade has picked up and commodity prices are mostly higher than at the start of the
year. Inflation remains low and below central bank targets.

Sovereign bond yields have increased over recent months due to the positive news on vaccines and the
additional fiscal stimulus in the United States. Inflation expectations have also lifted from near
record lows to be now closer to central banks’ targets. The 3-year government bond yield in
Australia is at the Board’s target of 10 basis points and lending rates for most borrowers are
at record lows. The Australian dollar remains in the upper end of the range of recent years.

The economic recovery in Australia is well under way and is stronger than had been expected. The
unemployment rate fell to 5.8 per cent in February and the number of people with a job has
returned to the pre-pandemic level. GDP increased by a strong 3.1 per cent in the December
quarter, boosted by a further lift in household consumption as the health situation improved. The
recovery is expected to continue, with above-trend growth this year and next. Household and business
balance sheets are in good shape and should continue to support spending.

Nevertheless, wage and price pressures are subdued and are expected to remain so for some years. The
economy is operating with considerable spare capacity and unemployment is still too high. It will take
some time to reduce this spare capacity and for the labour market to be tight enough to generate wage
increases that are consistent with achieving the inflation target. In the short term, CPI inflation is
expected to rise temporarily because of the reversal of some COVID-19-related price reductions. Looking through this, underlying inflation is
expected to remain below 2 per cent over the next few years.

Housing markets have strengthened further, with prices rising in most markets. Housing credit growth to
owner-occupiers has picked up, with strong demand from first-home buyers. In contrast, investor credit
growth remains subdued. 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 the 3-year government bond yield target of 10 basis points. Later
in the year it will consider whether to retain the April 2024 bond as the target bond or to shift to the
next maturity. The initial $100 billion government bond purchase program is almost complete and the
second $100 billion program will commence next week. Beyond this, the Bank is prepared to undertake
further bond purchases if doing so would assist with progress towards the goals of full employment and
inflation. Authorised deposit-taking institutions have drawn $95 billion under the Term Funding
Facility and have access to a further $95 billion. Since the start of 2020, the RBA’s balance
sheet has increased by around $215 billion.

These various monetary measures are continuing 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. Together, monetary and fiscal policy are contributing to the recovery in
aggregate demand and the pick-up in employment.

The Board is committed to maintaining highly supportive monetary conditions until its goals are
achieved. The Board will not increase the cash rate until actual inflation is sustainably within the
2 to 3 per cent target range. For this to occur, wages growth will have to be materially
higher than it is currently. This 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.