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Chief economist update: RBA cash rate on ice until 2024

Except to reinforce its message that interest rates will remain at record lows "until 2024 at the earliest", the Reserve Bank of Australia's (RBA) June board meeting was largely a ho-hum affair.

As expected, the RBA left monetary policy settings unchanged; "including: the targets of 10 basis points for the cash rate and the yield on the 3-year Australian government bond; the parameters of the government bond purchase program; and the rate of zero per cent on Exchange Settlement balances".

Financial markets expected as much. This is because the Australian central bank has already provided forward guidance at its May meeting that July is the month to watch out for.

"At its July meeting, the board will consider whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity, the November 2024 bond. The board is not considering a change to the target of 10 basis points. At the July meeting, the board will also consider future bond purchases following the completion of the second $100 billion of purchases under the government bond purchase program in September," it has said.

Then again, it doesn't hurt to replay the RBA's rosy narrative that Australia's economic recovery has been stronger than expected and would continue to do so. The RBA revised up its 2021 GDP growth forecast to 4.75% (from 3.5% predicted in its February statement). Only a day before, the OECD's 'Economic Outlook' report upgraded Australian GDP growth to 5.1% this year (from 4.75% it forecast in March and 3.2% in December 2020.

This stronger economic growth would boost the labour market with the RBA expecting the jobless rate to continue to fall "to be around 5% at the end of this year and around 4.5% at the end of 2022".

As for inflation, it's expected to rise temporarily "above 3% in the June quarter because of the reversal of some COVID-19-related price reductions" but largely, the RBA expects only a "gradual and modest" rise in inflation and wages.

"In the central scenario, inflation in underlying terms is expected to be 1.5% in 2021 and 2% in mid-2023," the RBA said.

"This outlook is supported by fiscal measures and very accommodative financial conditions. An important ongoing source of uncertainty is the possibility of significant outbreaks of the virus [alluding to the renewed coronavirus outbreak in Victoria], although this should diminish as more of the population is vaccinated."

The RBA's overriding assurance: "The board is committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2-3% target range."

Read our full COVID-19 news coverage and analysis here.

Read more: Reserve Bank of AustraliaOECD