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RBA makes first cash rate call for 2021

Adrian Flores
Adrian Flores
02 February 2021 1 minute readShare

The Reserve Bank of Australia has decided the official cash rate for the first time this year as the government sets its sights on a sustained economic recovery from the coronavirus crisis.

In line with expectations, the RBA has held the cash rate at a record low of 0.1 of a percentage point.

In response to the decision, CreditorWatch chief economist Harley Dale said that with the RBA using up its ammunition late in 2020, the focus this year will be firmly on federal and state fiscal policy to complement super-low borrowing rates and keep our Australian economic recovery on track.

“In terms of all the policies that the RBA has in place, the central bank will be closely keeping an eye on early 2021 economic updates for key sectors such as retail,” Mr Dale said.

“In his National Press Club address yesterday, the Prime Minister reinforced and outlined a raft of policies, including tax cuts for small and medium-sized enterprises (SMEs). Such policies are in play against a backdrop of metrics — such as Australia’s unemployment rate — being in much better shape than many feared through much of last year.”

Mr Dale pointed to the SME sector as a key barometer of Australia’s economic recovery in 2021.

“CreditorWatch data from a range of industries will continue to provide crucial updates as to how the business and economic landscape for SMEs is faring in the lead-up to and necessary conclusion of the JobKeeper program,” he said.

AMP Capital chief economist Shane Oliver said it will still be a while to go before the RBA even considers shifting the cash rate.

“The economy has recovered faster than expected and the deployment of vaccines should aid further recovery, so I have brought forward the timing of the first rate hike from 2023 to late 2022,” Mr Oliver said.

“But there will still be lots of spare capacity in the economy for a long time which will keep underlying inflation down, so a rate hike is still a long way off.”

RBA makes first cash rate call for 2021
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Adrian Flores
Adrian Flores

Adrian Flores is the deputy editor of MyBusiness. Before that, he was the deputy editor for SMSF Adviser as well as features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.

You can email Adrian at [email protected].

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