Australia’s central bank says things are looking up as it remains content to watch on from the sidelines.

Emerging from its monthly cash rate meeting, the Reserve Bank of Australia (RBA) left interest rates on hold as it mulls the burgeoning recovery.

“The outlook for the global economy has improved over recent months due to the development of vaccines. While the path ahead is likely to remain bumpy and uneven, there are better prospects for a sustained recovery than there were a few months ago,” Governor Philip Lowe said.

“That recovery, however, remains dependent on the health situation and on significant fiscal and monetary support. Inflation remains low and below central bank targets.”

Closer to home, the outlook appears even better.

“In Australia, the economic recovery is well under way and has been stronger than was earlier expected. There has been strong growth in employment and a welcome decline in the unemployment rate to 6.6%,” Lowe said.

“Retail spending has been strong and many of the households and businesses that had deferred loan repayments have now recommenced repayments. These outcomes have been underpinned by Australia’s success on the health front and the very significant fiscal and monetary support.”

The labour market remains the number one indicator for the federal government and the RBA alike on how the economy is faring. While above Treasury’s new target of 6%, it is still well-below what had been forecast initially.

Lowe said the RBA expects it to hit 6% by the end of this year before reaching 5.5% by the end of 2022. The central bank forecasts the broader economy to grow at 3.5% each year for the next two, with the economy to return to its pre-pandemic size by the middle of the year.

To get there the RBA is content to lets its quantitative easing (QE) program to boost the recovery effort.

“Although the upgrade to the outlook seems somewhat at odds with the extension of the QE program, to achieve the RBA’s inflation target the economy needs economic activity to be significantly higher than its pre-COVID peak,” Sarah Hunter, chief economist at BIS Oxford Economics, said.

“Australia’s economy entered the COVID downturn with capacity to spare, and notwithstanding the hit to migration the population and so productive potential of the country has increased since then.”

Having inoculated the economy largely against the worst of the downturn, economists share some of Lowe’s optimism for the year ahead.

A Finder survey of 41 boffins found three in four are upbeat about the the labour market, a record during its three-year history.

However less can be said for other economic indicators. Just one in ten economists responded positively when quizzed on housing affordability, wage growth, and the cost of living.

Australia will be waiting a long time for things to improve on that from it appears.

“The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3% target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest,” Lowe said.

With the RBA’s bond buying program alive and well, and real interest rates very nearly touching rock bottom, the central bank has little choice but to take a backseat on matters of stimulus.

“With the RBA using up its ammunition late in 2020, the focus this year will be firmly on federal and state fiscal policy to complement super-low borrowing rates and keep our Australian economic recovery on track,” CreditorWatch chief economist Harley Dale.

However, the Morrison government looks less than enthused about further spending. Expecting a $200 billion savings buffer to flow through the economy this year, the Prime Minister has all but rejected the notion of further stimulus.

With no reform agenda, support looks to be on cruise control pending another major disruption.

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