No more Mr Hawk at the Shadow RBA:
Cash rate should stay on hold for at least another year – Shadow Board
The lockdown in Victoria serves as a potent reminder that Covid-19 can affect the domestic economy unexpectedly at any time, at least until a large proportion of the Australian population is vaccinated. The recent economic recovery has been gathering pace, leading to favourable outcomes in the labour market in particular. Nonetheless, there remains significant slack in the economy, and CPI inflation equals a mere 1.1% (year-on-year, Q1 of 2021), well below the RBA’s official target band of 2-3%. The RBA Shadow Board is convinced that the cash rate should remain at the historically low rate of 0.1% for at least another year. It confidently expects that the cash rate will need to be higher than its current level in three years from now.
The most recent readings of the Australian labour market surprised analysts yet again. The official ABS unemployment rate dropped from 5.6% in March to 5.5% in April. However, total employment unexpectedly declined by just over 30,000, while the labour force participation rate also dropped, from 66.3% to 66%. Encouragingly, the youth unemployment rate fell by another full percentage point, for the third consecutive month, to 10.6%. The labour market will have to tighten considerably more before there is any major upward pressure on wages.
