Reserve Bank of Australia governor Philip Lowe has made it clear the central bank won't be rushing to lift the cash rate anytime soon, despite predicting robust economic growth in the coming year.
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The RBA held its monthly board meeting on Tuesday where it left the cash rate unchanged at a record low 0.1 per cent.
But it ditched its three-year bond yield target that was introduced at the height of the pandemic last year and aimed at keeping market interest rates in line with the cash rate.
Dr Lowe told a rare post-meeting webinar this decision does not reflect a change in view that the cash rate will not be increased before 2024.
"Given the information we currently have to hand, it is still entirely possible that the cash rate will remain at its current level until 2024. But it is also possible that an earlier move will be appropriate," he said.
Financial markets and some economists have been speculating on a possible rate rise as early as next year following last week's inflation data showed the underlying measure had jumped to 2.1 per cent and within target.
This was the strongest result in six years.
Dr Lowe thought this was a "complete overreaction" by the markets to the inflation data.
"I'm not sure how we would get to that state of the world and be in a position to raise rates early in the new year. I still struggle with the scenario that rates would need to be raised next year," Dr Lowe said.
The central bank still wants to see inflation sustainable within its two to three per cent target, which will need a lower unemployment rate and wages growth much higher than it currently stands.
The bank's latest forecast is that underlying inflation will be no higher than 2.5 per cent at the end of 2023 and for only a gradual increase in wages growth.
The RBA expects economic growth to record a solid gain in the December quarter, following the sharp contraction in the September quarter caused by the recent lockdowns in major states, and then grow by around 5.5 per cent over 2022.
BIS Oxford Economics chief economist Sarah Hunter says although there has been an upgrade to the outlook, the expectation that it will take until late 2023 for wages growth to lift and inflationary pressures to build "still looks somewhat pessimistic".
"We think the board will be in a position to raise the cash rate in the first half of 2023," Dr Hunter said.
Rising petrol prices were a key factor in lifting inflation in the September quarter, which continues to weigh on Australians' view of the inflation outlook.
The weekly ANZ-Roy Morgan consumer survey showed inflation expectations edge only 0.1 percentage points down from 4.9 per cent after spiking to a seven-year high of five per cent last week.
The national average price for unleaded petrol declined a modest 0.7 cents a litre in the past week to 168.8 cents, after striking a record high in the previous week, but record prices were seen in Adelaide, Hobart and Canberra.
However, despite the impact of high fuel costs on the household budget, consumer confidence rebounded as COVID-19 restrictions in Australia's major states continued to ease.
The ANZ-Roy Morgan consumer confidence index - a pointer to future household spending - rose 1.5 per cent to its highest level since early July.
Confidence was up two per cent in NSW and Victoria 5.5 per cent in Victoria, offsetting falls in Queensland, South Australia and Western Australia.
Australian Associated Press
