The minutes of the Reserve Bank’s May board meeting have stuck to the script of having to keep interest rates at ultra low levels for a number of years, but were also a reminder of the circumstances needed to see a hike.
The minutes were somewhat dated given the central bank has since released its quarterly statement on monetary policy 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 in the interim.
The May 4 meeting left the cash rate at a record low 0.1 per cent.
“The board will not increase the cash rate until actual inflation is sustainably within the two to three per cent target range… it was likely that wages growth would need to be sustainably above three per cent,” the minutes released on Tuesday said.
“The board viewed these conditions as unlikely until 2024 at the earliest.”
The latest wage growth figures due on Wednesday will highlight the chasm between what the RBA is seeking and the reality of the current state of play.
Economists expect the 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.
And for all of its big spending, the budget forecasts wages only growing by 2.75 per cent by 2024/25 after either trailing or being flat to inflation before then.
The budget managed to give a modest lift to confidence among Australians.
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.
But 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 told an event conducted by peak welfare group ACOSS.