MNI: RBA Policy View Expects Bounceback From Recent Lockdowns

The Reserve Bank of Australia has forecast third quarter GDP growth will see a contraction of 1%, but is still expecting annualised economic growth of 4% by the end of 2021.

The forecast is contained in the quarterly Statement on Monetary Policy, released on Friday, which shows that under its baseline scenario the central bank expects the current pandemic lockdowns to cut 75 basis points off its previous GDP forecast for 2021, published in May. The May statement was for a 4.75% growth rate at the end of 2021.

There was no change to the RBA view that it did not expect to increase interest rates "until 2024", or any shorter-term change to its bond buying program of buying AUD5 billion of bonds per week until September, and then AUD4 billion per week until November when the program would be reviewed.

REBOUND LIKE "PREVIOUS LOCKDOWNS"

The statement shows the RBA believes the economy will rebound strongly towards the end of the year as restrictions ease, "as it has with previous lockdowns."

Despite the lockdowns, which RBA Deputy Governor Luci Ellis told a Parliamentary Committee today said were costing the New South Wales economy AUD1 billion a week, the RBA still sees a strong recovery underway, with employment growing faster than expected along with wages growth and underlying inflation.

INFLATION, JOBS, OUTLOOK

Trimmed mean inflation, the central bank's key indicator, is expected to reach 2.25% by the end of 2023.

The RBA target rate is 2% to 3%, and the bank says it needs inflation to be "sustainably" in this target range and for unemployment to be around 4% before it will consider raising interest rates from the record low of 0.10%.

The statement shows the central bank expects unemployment to reach 4% in December 2023.