Reserve Bank governor Philip Lowe says the Australian economy is in striking distance of recovering to its pre-pandemic levels after materially better than expected growth results.
The economy expanded by 3.1 per cent in the December quarter after a 3.4 per cent increase in the the previous three months.
“They reflect the success that Australia has had on the health front, the very large fiscal and monetary policy support, and the flexibility of Australians in getting on with their lives and businesses,” Dr Lowe told a conference on Wednesday.
“As a result, we are now within striking distance of recovering the pre-pandemic level of output.”
He also said the recovery in employment has been “V-shaped” with a welcome decline in the unemployment to 6.4 per cent.
“Job vacancies, job ads and hiring intentions remain strong,” he said.
“This suggests that the unemployment rate will continue to trend lower, although this trend could be temporarily interrupted when JobKeeper comes to an end later this month.”
However, he said there are still many people who want a job and can’t find one and many others want to work more hours, while wages and prices are still a long way from what the central bank is seeking.
Dr Lowe noted the recent action in global bond markets has interest rate increases priced in Australia as early as late next year and again in 2023.
“This is not an expectation we share,” he said, reiterating that he does not expect to lift the cash rate from its record low 0.1 per cent until 2024 and when inflation is predicted to be sustainably within the two to three per cent target.
Wages growth also needs to materially higher.
“I also want to emphasise that the monetary stimulus is not just about achieving an inflation rate of two-point-something,” he said.
“It is just as much about achieving the maximum possible sustainable level of employment in Australia.
“Unemployment is a major economic and social problem and the board places a high priority on a return to full employment.”
He said a full recovery of the economy requires a further lift in business investment to boost productivity and provide a firm basis for stronger growth and wages.
The governor said low interest rates are one of the factors contributing to the rise in housing prices.
“I would like to reiterate that the RBA does not target housing prices, nor would it make sense to do so,” he said.
“There are various tools, other than higher interest rates, to address these concerns, leaving monetary policy to maintain its strong focus on the recovery in the economy, jobs and wages.”