RBA reveals April cash rate call - April 2021
The Reserve Bank of Australia has made its April call on the official cash rate, following its decision to cut the rate to a record low in November.
In line with expectations, the RBA has held the cash rate at a record low of 0.1 of a percentage point.
“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 three-year Australian government bond, as well as the parameters of the Term Funding Facility and the government bond purchase program,” the RBA said.
The decision to leave interest rates on hold comes as no surprise to economists, after the RBA confirmed on several occasions that rates will likely remain as they are until 2024 at the earliest.
Commenting on the RBA’s latest decision, Harley Dale, chief economist at CreditorWatch, said the RBA’s decisions to date have given the economy the push it needs to continue its recovery journey.
“The official cash rate is at a record low of 0.1 per cent, and the RBA has injected substantial liquidity into Australia’s financial system. As a result, Australia’s economy appears to be firmly in recovery mode, but we tend to gauge the situation based on aggregates and averages, which is misleading,” said Mr Dale.
He noted, however, that while re-emerging inflationary pressures are good for the economy, they need to be kept in check.
“There is talk of re-emerging inflationary pressures as the economy regrows itself. That would be a good thing for the Australian economy, but as long as we stay below the aggregate, the economic recovery remains fractured,” Mr Dale said.
“There are still significant parts of the economy being left behind despite overall improving conditions. If we can sustain an improvement in unemployment rates and the broader labour market, we will be well on our way to a full-blown recovery. We’re not there yet though and monthly statements from the RBA will likely reflect that fact in coming months,” he concluded.
Bankwest Curtin Economics Centre’s deputy director, Rebecca Cassells, believes the RBA could be pushed to act before 2024, if the economy surpasses expectations of growth and employment.
“In its response, the RBA could be looking to add a quarter of a basis point to official interest rates by the end of 2021.”
On the other hand, Ms Cassells opined the economy could see its hard-earned gains erode rapidly, as lockdowns continue, safety nets disappear and the vaccination rollout continues at a snail’s pace.
“This scenario is a very real possibility and is playing out right now in Brisbane. Business confidence will quickly wane and employment will begin to head backwards – as will any inflationary pressures (sans the housing market, which is already overheated). Interest rates under this scenario would take some time to lift again,” she said.
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