Don't expect rates to rise until at least 2024: RBA
Australians should expect the cash rate to stay at its current historic low of 0.10% until at least 2024.
"The board will not increase the cash rate until actual inflation is sustainably within the 2 to 3% target range," said RBA governor Philip Lowe in yesterday's policy decision statement.
"The board does not expect these conditions to be met until 2024 at the earliest."
This is good news for risk assets and property prices.
"The [property] market is surging on the back of low rates, government stimulus, and Aussies having more in their savings accounts on average," says Graham Cooke, head of consumer research at Finder.
"We expect this to continue through 2021, but Perth's snap lockdown is a reminder that things can change quickly."
The rate call bodes less well for fixed income investments, which will pay out rock bottom yields for as long as rates remain at rock bottom levels.
The lower for longer forward guidance was coupled with an optimistic economic pulse check - a double whammy clearly intended to boost confidence.
"The outlook for the global economy has improved over recent months due to the development of vaccines," said Lowe.
"While the path ahead is likely to remain bumpy and uneven, there are better prospects for a sustained recovery than there were a few months ago."
These comments were qualified, nonetheless, with a COVID hedge: "[it] remains dependent on the health situation."
Reading between the lines, the RBAs reluctance to lift the cash rate is motivated by the need to prevent the Aussie dollar from pushing higher.
"The world's central banks are playing a game of competitive devaluation - a currency cage match," says GSFM investment strategist Stephen Miller.
"The RBA has no choice but to remain in the cage by maintaining measures whose purpose is, inter alia, to prevent the AUD from appreciating to a level that compromises international competitiveness and compromising its activity, employment and inflation objectives."
The RBA also announced that it would extend its quantitative easing program by $100 billion, while leaving in place the yield target on three-year bonds.
"Whilst speculation has been growing amongst economists that the RBA may soon begin to tinker with its policy settings, it is far too soon to be thinking about tightening any form of monetary policy," says cross-asset investment specialist at Fidelity International Anthony Doyle.
"It isn't clear how much long-term damage has been done to the hospitality and tourism sectors, and as the Federal Government's fiscal measures such as the JobKeeper scheme begin to roll off, household incomes will begin to come under pressure."
Still, Doyle notes that "the RBA does have plenty of reasons to cheer given the large pool of savings that households have built up over the pandemic period, improving consumer confidence and the strengthening housing market".