The RBA expressed optimism about the economy, while maintaining that greater wage growth and inflation would take time, and that the first interest rate hike would be unlikely before 2024.

The economy will grow by 3% this year, despite a projected significant drop in Q3 owing to virus lockdowns, and then accelerate to 5.5% in 2022, according to the RBA's quarterly forecast update. By the end of 2023, it expects wage growth of 3% and inflation to be at the 2.5% midpoint of the central bank's target.

The RBA stated, "A swift trajectory of recovery from the recent setback appears increasingly likely. The board believes that this outcome could be consistent with the first hike in the cash rate being in 2024, depending on the trajectory of the economy at the time."

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The central bank's rate decision is a further rebuke to market expectations for a tightening cycle to start next year. The RBA acknowledged that there was a realistic scenario in which wages and consumer prices grew faster than predicted, necessitating a rate hike in 2023, but it ruled out a raise in the next 12 months.

After trading at 1.2% at the end of last week, markets now forecast the cash rate at 0.75% within a year. Wages are expected to accelerate to 2.25% by the end of this year, 2.5% in 2022, and 3% in late 2023, according to the RBA's central scenario.

In the RBA's upside scenario, unemployment drops to 3.25%, triggering a strong wage recovery and pushing inflation beyond 3% by the end of 2023. "If this occurs, an increase in the cash rate in 2023 may be justified," the RBA stated. "However, the board believes that the most recent data and predictions do not necessitate a cash rate increase in 2022."