RBA Says Significant Jobs Gains Needed to Return CPI to 2-3%

(Bloomberg) -- Australia’s central bank said the economy will need “significant gains” in employment and a tighter labor market to drive faster wages and return inflation to its 2-3% target.

“Given the outlook, the board is not expecting to increase the cash rate for at least 3 years,” Reserve Bank Governor Philip Lowe said Tuesday after the final policy meeting of the year. “The board will keep the size of the bond purchase program under review, particularly in light of the evolving outlook for jobs and inflation. The board is prepared to do more if necessary.”

The Australian dollar was little changed after the decision and was trading at 73.62 U.S. cents at 2:49 p.m. in Sydney.

The RBA unleashed a fresh round of stimulus last month that included cutting the cash rate, three-year yield target and bank lending rate to 0.10% and announced a A$100 billion ($73.6 billion) bond-buying program over six months. Lowe is capitalizing on the southeastern state of Victoria reopening and an expansive government budget in October to drive the recovery.

“The board views addressing the high rate of unemployment as an important national priority,” Lowe said in a statement, noting the jobless rate is still expected to be around 6% at the end of 2022 from 7% at present.

The central bank’s “policy decisions over recent months will help here,” the governor said. “These decisions are complementary to the significant steps taken by Australian governments to support jobs and economic growth.”

Australia heads toward the new year in reasonable shape, with Covid-19 contained and record-low borrowing costs boosting confidence, the housing market and hiring.

“Globally, the news has been mixed recently,” Lowe said, noting renewed Covid outbreaks in the U.S. and Europe. At the same time, “the positive news on vaccines has boosted equity markets, lowered risk premiums and supported further increases in some commodity prices.”

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