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RBA governor Philip Lowe says interest rates will not be increased until wages growth is strong and the jobless rate close to 4 per cent.Credit:Dominic Lorrimer

The bank cut official rates to a record low of 0.1 per cent last year. It is also engaged in a $200 billion quantitative easing program,buying federal and state government debt with the aim of keeping yields on these bonds at record lows.

But growing global inflation expectations,plus signs the Australian economy is growing quicker than expected,has prompted market speculation the RBA may lift rates next year or early 2023.

Dr Lowe,however,used his speech to shoot down the speculation,saying it was “not an expectation that we share”.

He said wages growth,currently at 1.4 per cent,would have to lift above 3 per cent to get inflation back to the bank’s target of between 2 and 3 per cent. The last time wages growth was that strong was in 2013.

Unemployment would have to be closer to 4 per cent,well down from its 6.4 per cent level at present,while under-employment would also have to fall.

“The evidence strongly suggests that this will not occur quickly and that it will require a tight labour market to be sustained for some time. Predicting how long it will take is inherently difficult,so there is room for different views,” he said.

“But our judgment is that we are unlikely to see wages growth consistent with the inflation target before 2024. This is the basis for our assessment that the cash rate is very likely to remain at its current level until at least 2024.”

Dr Lowe said the effort to drive up wages faced some major structural issues that were affecting economies around the globe.

This included increased competition among makers of goods,the lift in the provision of services internationally,advances in technology,the loosening of regulation around employment and the growing share of national income going to profits rather than wages.

The RBA says it is watching house price growth but won’t use higher interest rates to temper the market.Credit:Jessica Shapiro

Another reason analysts have started to argue the bank could lift rates earlier is the strength of the property market. Values through February grew at their fastest rate in 17 years.

Dr Lowe said while the bank did not target house prices,it and other banking regulators were watching the current situation carefully,adding action such as tighter lending standards could be taken to cool the market.

“We are continuing to pay close attention to lending standards,especially given the combination of low interest rates and rising housing prices,” he said.

“Looser standards would increase medium-term risks and add to the upward pressure on prices,so would be of concern.”

NAB senior economist Tapas Strickland said governor Lowe’s comments pointed to interest rates remaining at their current record low of 0.1 per cent until at least 2024.

He said the bank may extend its quantitative easing program with another $100 billion extension from September.

The key issue for the bank was the jobs market which needed to become very tight if inflation and wages were to climb.

“This likely requires the unemployment rate to be materially lower – perhaps as low as the 4s or even in the 3s,” he said.

In its latest outlook on the global economy,the OECD is urging central banks to keep official interest rates low and calling on governments to continue running large budget deficits.

The Paris-based think tank,which expects the Australian economy to expand by 4.5 per cent this year,said strong fiscal policy had played a vital role in supporting incomes and preserving jobs and businesses.

“A premature and abrupt withdrawal of support,as in the aftermath of the global financial crisis,should be avoided whilst economies are still fragile and growth remains hampered by containment measures and a slow pace of vaccinations,” it said.

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