• The Reserve Bank of Australia (RBA) has again signaled the interest rate will remain at 0.10% until 2024, despite Australia’s economic recovery.
• The recovery has been “far sharper than most of us would have dared imagine a year ago,” RBA assistant governor Luci Ellis said Wednesday.
• But Australia’s lenders now predict the rate could be tweaked as early as 2022.
• Visit Business Insider Australia’s homepage for more stories.

The Reserve Bank of Australia (RBA) has maintained that “highly supportive monetary conditions” will exist for some time to come, after Commonwealth Bank joined the chorus of major lenders suggesting the central bank is likely to bump the interest rate above 0.10% before its stated 2024 target.

Speaking before the Australian Industry Group in Adelaide on Wednesday, RBA assistant governor Luci Ellis said there was “no rulebook for understanding how the pandemic would play out,” nor one for Australia’s broad economic recovery from the crisis.

“Forecasting in this environment is inevitably an exercise in humility,” she said.

Not all of those unforeseen circumstances have been detrimental, though, and the speech focused on Australia’s generally rosy position.

Missing from the RBA’s earlier predictions were encouraging patterns in consumer spending, Ellis said.

Financially secure Australians splurged on goods when services were locked down, she remarked, pointing to the unprecedented JobKeeper program as a key contributor to wage stability for many workers.

The spending bounce-back once lockdowns lifted was also difficult to predict.

“Our experience is that once the virus comes under better control and the restrictions on activity are lifted, activity bounces back very quickly,” Ellis remarked, saying it “should have been less of a surprise” that expenditure rose as soon as shoppers were permitted to spend.

“The result is a sharp recovery in output and employment, far sharper than most of us would have dared imagine a year ago,” she said.

Local economies recovered quickly from the shorter lockdowns imposed in recent months, Ellis added, suggesting the recovery is resilient to the kind of shutdowns likely to take place before a large majority of Australia’s population receive the COVID-19 vaccine.

“The recent short lockdowns have not been as disruptive for the economy as the earlier, longer ones,” Ellis said. “And while the border closure has posed challenges in some parts of the economy, so far it has not materially impeded the recovery.”

Regardless, the RBA maintains low interest rates are necessary to shepherd the remarkable recovery into a full-blown expansion.

“As economies move through recovery to the expansion phase, the focus naturally turns to sustaining that expansion, Ellis said. “That means ensuring that demand continues to be supported for as long as spare capacity remains.”

Cheap money will help employers — which are already posting a record number of job ads — facilitate “any structural adjustments that might be needed” after lockdowns. And this kind of workplace efficiency measure is vital for the RBA’s cascading goals of full employment, wage growth, and manageable inflation.

In short: There is reason for optimism, no matter how unexpected it may have been this time last year. But the RBA still believes the cash rate will remain at 0.10% until 2024, as it has repeatedly stated.

“For all these reasons, the Board remains committed to maintaining highly supportive monetary conditions,” Ellis concluded. “The aim of these policy settings is to support a return to full employment and inflation consistent with the target.”

Those final remarks cut against recent analysis from Commonwealth Bank economists, who suggests Australia’s rallying economy and rapidly falling unemployment rate will result in considerable wage growth far earlier than the RBA has planned.

Under the assumption that super lenient monetary conditions will soon become less vital for Australia’s recovery, CommBank’s in-house experts suggest the RBA will be forced to lift the rate to 0.25% in September 2022, before stepping it up to 1.25% by September 2023, “the level at which we assess the cash rate to be neutral”.

The gurus at retail lending competitors ANZ and Westpac have also suggested the RBA will be forced to hike rates sooner than they had planned, albeit without the same urgency CommBank has forecast.

With record levels of borrowing for new homes in the early months of 2021, those tweaks will have outsized impact on the Australian recovery — whether they kick in in 2022 or 2024.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.