The Reserve Bank of Australia has left the national cash rate unchanged at 0.1 per cent as the economy faces a worsening outlook on all fronts and a potential recession.
RBA Governor Philip Lowe noted the current lockdowns' impact on what was “considerable momentum” in the economy.
“The recovery in the Australian economy has ... been interrupted by the Delta outbreak and the associated restrictions on activity,” Lowe said.
“While the outbreak is affecting most parts of the economy, the impact is uneven, with some areas facing very difficult conditions while others are continuing to grow strongly.”
Lowe said he also expected unemployment to tick up in the next few months.
However, he was also optimistic about the downturn, and described the "setback" as "only temporary".
"The Delta outbreak is expected to delay, but not derail, the recovery.
"As vaccination rates increase further and restrictions are eased, the economy should bounce back."
Very much will ride on the COVID-19 situation and whether daily case numbers improve and restrictions can be lifted, he added.
"In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year."
In order to aid economic recovery, the RBA will also buy government bonds at the rate of $4 billion a week and will continue to do so until mid-February 2022.
RBA hold widely expected
The decision to hold steady comes as no surprise to Australian economists, who unanimously agreed that the RBA would hike rates only if wages and inflation growth hit their targets.
The RBA has repeatedly indicated that it needs to see inflation at 2-3 per cent and wages growth at 3 per cent or more before it moves to raise rates, which Lowe reiterated again in today's statement.
"It will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range," said Lowe.
"The central scenario for the economy is that this condition will not be met before 2024."
“I take the RBA at its word when it says it won't begin tightening monetary policy until the labour market is sufficiently tight,” said independent economist Saul Eslake.
Peter Boehm, of foreign exchange broker CSLA Premium, believes “we have a recipe for economic uncertainty” in the short term. “The RBA has no option but to keep rates on hold for now,” he said.
The sentiments of economic uncertainty were echoed by stock market analyst Dale Gillham, who said businesses and consumers were acting “conservatively” as a result of the lockdowns’ impact.
“I believe we will not see any strong growth for at least six months to one year,” Gillham said.
Economists are estimating the RBA won’t hike rates until early to mid-2023.
Once ‘roaring’ recovery interrupted by elongated lockdowns
Unemployment figures released later this month will give a fuller picture of jobs lost from the lockdown.