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Reserve Bank tips 5.5 per cent growth next year, puts rate rises on agenda

The Reserve Bank of Australia says an interest rate rise in 2023 is plausible, but only if inflation and wages growth exceed its current expectations.

Nov 05, 2021, updated Nov 05, 2021
Morgans has tipped three more rate hikes (pic: AAP)

Morgans has tipped three more rate hikes (pic: AAP)

In its quarterly statement on monetary policy, the RBA’s central scenario is that wages growth edges up to around three per cent and underlying inflation is in the middle of the two to three per cent target band at the end of 2023.

“Depending on the trajectory of the economy at that time, the board judges that this outcome could be consistent with the first increase in the cash rate being in 2024,” the statement released on Friday said.

But it says if wages growth and inflation prove to be higher, an increase in the cash rate in 2023 could be warranted.

“However, in the board’s view, the latest data and forecasts do not warrant an increase in the cash rate in 2022,” it said.

It said the labour market was materially affected by the recent lockdowns, but already these effects were receding.

As such, the unemployment rate is expected to be a little below five per cent at the end of 2021, and is forecast to decline steadily from there, reaching four per cent by the end of 2023.

More broadly, it said the recovery from the Delta outbreak was under way.

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The economy is expected to have contracted by around 2.5 per cent in the September quarter due to lockdowns in Australia’s major states.

“Now that vaccination rates are rising quickly to very high levels, and restrictions on activity have been eased significantly, the economy is recovering rapidly.” the RBA said.

“The speed of this recovery is consistent with the strong underlying momentum in the economy prior to the outbreak.”

Growth is now expected to be around three per cent over 2021 and 5.5 per cent in 2022, before returning to around 2.5 per cent over 2023 – a rate closer to pre-pandemic averages.

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