RBA reaches decision on official cash rate for April

As widely predicted, the RBA has decided to hold the cash rate at a record-low 0.1 of a percentage point.

CreditorWatch chief economist Harley Dale said the decision to leave interest rates on hold comes as no surprise.

“The official cash rate is at a record low of 0.1 [of a percentage point] and the RBA has injected substantial liquidity into Australia’s financial system,” Mr Dale said.

“As a result, Australia’s economy appears to be firmly in recovery mode, but we tend to gauge the situation based on aggregates and averages, which is misleading.”

Mr Dale noted there is talk of re-emerging inflationary pressures as the economy regrows itself.

He said that would be a good thing for the Australian economy, but as long as we stay below the aggregate, the economic recovery remains fractured.

“There are still significant parts of the economy being left behind despite overall improving conditions,” Mr Dale said.

“If we can sustain an improvement in unemployment rates and the broader labour market, we will be well on our way to a full-blown recovery.

“We’re not there yet though, and monthly statements from the RBA will likely reflect that fact in coming months.”

Bankwest Curtin Economics Centre deputy director Rebecca Cassells said the economy could right now go one of two ways.

She said it could continue its rapid recovery and surpass expectations of growth and employment, hoovering up spare capacity and pushing up inflation until we reach the 2 per cent threshold.

“In its response, the RBA could be looking to add a quarter of a basis point to official interest rates by the end of 2021,” she said.

Ms Cassells also said the economy could see the hard-earned gains eroded rapidly as lockdowns continue, safety nets disappear and vaccines roll out at a snail’s pace.

“This scenario is a very real possibility and is playing out right now in Brisbane. Business confidence will quickly wane and employment will begin to head backwards — as will any inflationary pressures (sans the housing market, which is already overheated). Interest rates under this scenario would take some time to lift again,” she said.