In big ask, Australia's central bank aims for wages to grow 'sustainably' above 3%

[SYDNEY] Australia's central bank wants annual wage growth to more than double to its highest in over a decade to meet its inflation goals, a tough task that underlines how long rates could remain near zero.

Minutes of its May policy meeting showed the Reserve Bank of Australia (RBA) Board believed wages would likely need to expand by "sustainably above 3 per cent" to generate inflation. Wage growth is currently running at just 1.4 per cent, compared with 2 per cent in Europe and nearly 3 per cent for the United States.

First-quarter wage price index data is due on Wednesday and are expected to show growth stuck around 1.4 per cent.

The central bank left its key rates at 0.1 per cent for a fifth straight meeting this month and reiterated it would not hike until actual inflation was within its 2-3 per cent target band.

The RBA sees that as unlikely to occur before 2024, at the earliest, given core inflation was currently at an all time low of 1.2 per cent.

The RBA said its "board remained willing to undertake further bond purchases if doing so would assist with progress towards the Bank's goals of full employment and inflation."

"Future policy decisions would be based on close attention to the flow of economic data and conditions in financial markets in Australia," the minutes showed.

The bank is currently conducting a second round of A$100 billion in bond purchases which end in September, and markets are wagering it will extend that to a third round in July.

Also in July, the RBA will consider whether to retain the April 2024 bond as the target bond for the three-year yield or shift to the next maturity of Nov. 2024.

Monetary stimulus together with massive fiscal support have helped Australia's A$2 trillion (S$2.08 trillion) economy rebound from a Covid-19 induced recession much faster than expected.

That allowed the RBA to upgrade the nation's growth forecast to 4.75 per cent over 2021, from its February prediction of 3.5 per cent.

The jobless rate is seen declining to be around 5 per cent at the end of this year and 4.5 per cent in mid-2023. In February, the RBA's forecast had unemployment only at 5.5 per cent by end-2022.

The solid economic rebound has sparked speculation the RBA would soon consider tapering some of its emergency stimulus.

In a bid to blunt the economic shock from the coronavirus pandemic last year, the RBA cut interest rates three times, announced a three-year yield target programme and launched a massive quantitative easing programme targeting longer term bonds.

REUTERS