The minutes of the Reserve Bank’s May board meeting have stuck to the script of keeping interest rates low until inflation returns to the target band, an event it does not expect to occur until 2024 at the earliest.
The minutes, released on Tuesday, were somewhat dated given the central bank has since released its quarterly statement on monetary policy with its latest economic forecasts, and deputy governor Guy Debelle has given a major speech on the bank’s actions during the pandemic.
The Morrison government has also released a big-spending budget.
The May 4 meeting left the cash rate 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 for employment and inflation were achieved,” the minutes say.
“The board will not increase the cash rate until actual inflation is sustainably within the two to three per cent target range. For this to occur, wages growth would need to be materially higher than it is currently.”
To drive inflation, RBA governor Philip Lowe has previously said unemployment needs to be much lower than it is now and wages need to be growing above three per cent.
The federal budget forecasts wages only growing by 2.75 per cent by 2024/25 after either trailing or being flat to inflation before then.
Economists expect Wednesday’s wage price index for the March quarter – a key gauge used by the RBA and Treasury to measure wages growth – will show annual growth of only 1.4 per cent.
Despite the big-spending budget, confidence among Australians received only a modest lift.
The weekly ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – rose 0.8 per cent, returning to its long-run average.
ANZ head of Australian economics David Plank thought the increase was just as much in response to Sydney’s recent clean sheet regarding new COVID-19 cases after a “mystery” infection the previous week.
Confidence among Sydneysiders jumped 5.4 per cent.
Among the survey’s components, “current financial conditions” rose by 1.6 per cent, but views on the future barely moved, up 0.1 per cent.
In contrast, views on the current state of the economy dropped 3.1 per cent and declined 1.1 per cent on the economic outlook.
It is hardly a glowing response to Treasurer Josh Frydenberg’s third budget, which spends almost $100 billion over the next four years, and includes the $1080 low and middle income tax offset being extended for another year.
Shadow treasurer Jim Chalmers said the budget was a missed opportunity to make the economy stronger and more inclusive after the COVID-19 pandemic.
“For two million Australians who can’t find a job or enough work, or those caught in long term unemployment at 20-year highs, it still feels like a recession,” he will tell an event on Tuesday run by peak welfare group ACOSS.