Reserve Bank of Australia governor Philip Lowe does not expect the conditions to lift the cash rate will be met in 2022 despite giving a glowing assessment of the economic outlook.
In what is expected to be his final public appearance for the year, Dr Lowe has told a conference in Wagga Wagga the NSW the economy is in recovery mode and the unemployment rate is expected head towards four per cent by 2023.
He reiterated the RBA board would not increase the cash rate until actual inflation was sustainably in the two to three per cent target range.
"We are still a fair way from that point. In our central scenario, the condition for an increase in the cash rate will not be met next year," he told the CPA Australia Riverina Forum on Thursday.
"It is likely to take time for that condition to be met and the board is prepared to be patient."
Dr Lowe does believe that with COVID-19 lockdowns lifted, spending is bouncing back quickly, although he admits the outbreak of the Omicron variant presents a downside risk.
"We do expect the positive momentum in the economy to be maintained through the summer, underpinned by the opening up of the economy, the high rates of vaccination, significant fiscal and monetary support, and the strengthening of household and business balance sheets," he said.
Dr Lowe said while households usually dipped into their savings during an economic downturn, this time they had added to them in a material way to more than $200 billion.
"Provided people have the ability to spend - and the confidence to do so - these additional savings will support strong growth in consumption over coming months," he said.
The central bank expects the unemployment rate to reach 4.25 per cent by the end of 2022, and four per cent by the end of 2023, backed by a sharp rise in job advertising and vacancies.
But he believes while inflation in the US has reached it highest level in almost four decades, the situation in Australia is quite different.
Underlying inflation at 2.1 per cent has only just returned to the target band for the first time in six years, and while the consumer price index is around three per cent, it is much lower than it is in the North Atlantic.
One reason is that while electricity prices have increased sharply in a number of countries, they have declined in Australia, while wage growth has remained relatively low.
"There are certainly hotspots in which wages are increasingly briskly, but most workers are still receiving wage increases starting with a two (per cent), and sometimes lower than this," he said.
"The RBA is expecting wages growth to pick up further but, at the aggregate level, to so do only gradually."
Australian Associated Press
