Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)
The Reserve Bank still does not expect to lift interest rates for a number of years, despite upgrading its economic forecasts.
Central bank governor Philip Lowe says the economic recovery has been stronger than earlier expected, which has seen a welcome decline in the unemployment rate to 6.6 per cent.
"These outcomes have been underpinned by Australia's success on the health front and the very significant fiscal and monetary support," Dr Lowe said in his post-meeting statement.
But he said both wage and inflation pressures remain subdued.
As economists expected, the central bank left its cash rate at a record low 0.1 per cent and other monetary policy measures unchanged at its first board meeting of the year on Tuesday.
But Dr Lowe reiterated the board will not increase the cash rate until actual inflation is sustainably within the two to three per cent target range.
"For this to occur, wages growth will have to be materially higher than it is currently," Dr Lowe said.
"This will require significant gains in employment and a return to a tight labour market."
The board does not expect these conditions to be met until 2024 at the earliest, a year later than it had previously envisaged.
However, the central bank did surprise financial markets by announcing it will extend its bond-buying program beyond mid-April, and when it will start purchasing a further $100 billion in federal and state government bonds.
This quantitative easing (QE) program aims to keep long-term market interest rates, and in turn borrowing rates, low.
Dr Lowe said the central scenario is for economic growth to return to its pre-pandemic level by the middle of the year and grow by 3.5 per cent over both 2021 and 2022.
"Although the upgrade to the outlook seems somewhat at odds with the extension of the QE program, to achieve the RBA's inflation target the economy needs economic activity to be significantly higher than its pre-COVID peak," BIS Oxford Economic chief economist Sarah Hunter said.
New figures show employment grew further in the early stages of 2021, albeit still lagging when compared to a year ago.
The Australian Bureau of Statistics said payroll jobs grew by 1.3 per cent nationally over the fortnight to January 16, with increases reported in all states and territories.
The weekly ANZ-Roy Morgan consumer confidence index a pointer to future household spending also rose for a second consecutive week and is close to its long-term average for the first time since late 2019.
These latest positive results add to a spread of economic figures in recent weeks suggesting the economic recovery is in full swing.
"It is important to recognise the vast extent to which Australia has come back and that comeback has been enormous across our economy," Finance Minister Simon Birmingham told Sky News.
But the minister warned there will be lasting changes as a result of the pandemic and the government won't be offering a helping hand to businesses that are no longer viable.
"Some businesses won't find their business models from before are as viable in the future as they might wish them to be they will have to change and adapt," Senator Birmingham said.
"So we don't want to prop up activities where people may need to adjust their business model. They may need to adjust their circumstances for the future."