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Economy to return to pre-Delta strength by mid-2022: RBA

James Mitchell
06 October 2021 1 minute readShare

The Reserve Bank expects to leave rates on hold until 2024 but anticipates the economy will bounce back once restrictions are lifted.

In its monthly meeting, the RBA noted that while the Delta outbreak has interrupted the recovery of the Australian economy, the setback is expected to be only temporary.

“As vaccination rates increase further and restrictions are eased, the economy is expected to bounce back,” Reserve Bank governor Philip Lowe said.

“Many businesses are now planning for the easing of restrictions and confidence has held up reasonably well. There is, however, uncertainty about the timing and pace of the bounce-back and it is likely to be slower than that earlier in the year.”

Mr Lowe added that much will depend on the nature and timing of the easing of restrictions on activity.

“In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year,” he said.

Jobs and wage growth

Mr Lowe noted that the restrictions on activity have had a significant effect on the labour market.

“Hours worked — the best indicator of labour market conditions at the moment — declined by nearly 4% in August,” he said.

Wage and price pressures also remain subdued in Australia. In underlying terms, inflation is running at around 1.75% and wages, as measured by the Wage Price Index, are increasing at just 1.7%.

“While disruptions to global supply chains are affecting the prices of some goods, the impact of this on the overall rate of inflation remains limited,” Mr Lowe said.

The RBA will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range, which is not expected until at least 2024.

Economy to return to pre-Delta strength by mid-2022: RBA
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James Mitchell

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