Repair work begins
Reserve Bank of Australia Governor Lowe spoke in Sydney yesterday, and noted that Australia has managed the virus well to date compared to other countries, helping to put the Aussie economy firmly on the road to recovery.
There was further positive vaccine news overnight, and the RBA's central scenario already foresaw a sharp rebound in economic growth (5 per cent growth in 2021, followed by 4 per cent growth in 2022).
Unemployment is expected to rise a little further before declining towards 6 per cent by the end of 2022, which is a far brighter scenario than might've been anticipated six months ago.
Even with lower population growth expected - at least until international students return - it's likely to be a long time before there's enough pressure on wages to lift inflation significantly and sustainably, and the focus of monetary policy for at least the next three years will be on reducing unemployment to below 5 per cent.
This probably means a record low cash rate for some years to come, and there will be more focus on actual inflation outcomes rather than forward guidance and inflation forecasts, which have often proved to be overly optimistic.
The Governor would like Australians not to become too risk averse, and still sees negative interest rates as an unlikely route...unless policy is forced down that path by similar outcomes elsewhere in the world.
