The RBA has provided a snapshot of the current economic climate and how it intends to achieve economic growth into the future.
In order for Australia’s currency to be preserved over the longer-term and for sustained economic growth, the RBA believes Australia needs to achieve its inflation target of between 2 and 3 per cent.
It is only then that the bank will consider lifting interest rates, despite not having done so since November 2010 – having held or cut rates 129 times in a row.
Despite history not being on its side, the RBA hopes pushing the economy to full employment could spark pay gains for workers and eventually lead to inflation growth.
“This assists businesses and households in making sound investment decisions, underpins the creation of jobs and protects the savings of Australians,” the RBA stated.
“Sustaining high employment means not only do more people have jobs, but they also have better opportunities in life. High rates of unemployment are costly for the economy and hurt our society.”
Australia’s labour market had been tightening rapidly, with a mix of fiscal support and an economic recovery led by pent-up demand lifting the need for workers.
The jobless rate had fallen to 4.6 per cent in July, but with much of the east coast now in its 10th week of lockdowns by the time the employment numbers were revealed it was predicted they could already have been out of date.
As a consequence of prolonged lockdowns, unemployment is expected to rise in coming months.
“The timing of the July labour market survey benefitted from Victoria’s June reopening but mostly missed the impact of the NSW lockdown and Victoria’s July lockdown,” AMP Capital’s Dr Shane Oliver explained at the time the ABS data was unveiled.
Allowing for a fall in participation and an increase in those working zero hours indicate that “effective unemployment” actually rose to around 5.5 per cent.
“Official unemployment is likely to rise to around 5.5-6 per cent in August and September due to the lockdowns, but hours worked are likely to take the bulk of the hit,” Dr Oliver said.
Meanwhile wages growth also softened over the June quarter with only small pockets of wage pressure flowing from international border closures.
While the unemployment rate remains key to Australia reaching its inflation target, the RBA also said it recognises its monetary policy decisions have implications for the banking operations in the domestic market, but it underlined that one of its key objectives is to secure the stability of the financial system.
“There are several distinct aspects to the Reserve Bank’s role in the payments system, including those of policymaker, overseer and supervisor, and owner and operator of key national payments infrastructure,” it said.
As such the central bank explained its role is to control the risk in the financial system, promote efficiency of the payment system and promote competition in the market for payment services.
Finally the RBA explained its role with the government.
“Insofar as the Commonwealth of Australia requires it to do so, the Reserve Bank must act as banker for the Commonwealth. The Reserve Bank’s banking services fall into two components: those services provided in its capacity as the central bank; and those transactional banking services it provides to Australian government agencies,” it concluded.
