What you need to know about the RBA's rate decision today

The Reserve Bank of Australia (RBA) has good news for ASX stocks and investors today, but not so good news for workers.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Reserve Bank of Australia (RBA) has good news for ASX investors but not so good news for workers.

Our central bank believes it will need to keep pumping liquidity into the market and the job market won't be firing on all cylinders for at least three years.

Equity markets have developed an unhealthy addiction to monetary stimulus and this is one of the key reasons that have sent stocks soaring since March.

RBA to act as safety net for ASX stocks

The S&P/ASX 200 Index (Index:^AXJO) surged 45% since the COVID‐19 market low and investors will keep partying into 2021 as the RBA isn't showing any signs of removing the punch bowl.

While RBA Governor Philip Lowe kept the current policy settings, the Reserve Bank appears to be resigned to the fact that it will need to do the heavy lifting over the next few years.

Job market the Achilles heel

Dr Lowe acknowledged that global news has been mixed. Infection rates have soared in Europe and the United States and their economies are suffering as a result.

On the other hand, a number of COVID vaccines are showing promise and their widespread use will reinvigorate the global economy.

"The recovery is also dependent on ongoing support from both fiscal and monetary policy," said Dr Lowe.

"Hours worked in most countries remain noticeably below pre-pandemic levels and inflation is low and below central bank targets.

"The extended period of high unemployment and excess capacity is expected to result in subdued increases in wages and prices over coming years."  

Why some inflation is desirable

So, while a rebound in recent job ads here is a cause for celebration, Australia remains stuck in a low growth world. This was a similar situation pre-COVID, although the pandemic has pushed back hopes for a return of "good" inflation for at least three years.

You will be forgiven to think that inflation is a bad thing as no one likes paying higher prices for things. But we need some inflation to get wages growth and the sweet spot, in the RBA's view, is between 2% and 3%.

No growth without inflation

We won't see those types of numbers for a while yet. The central bank is forecasting inflation of just 1% in 2021 and 1.5% the year after.

"The Board views addressing the high rate of unemployment as an important national priority," added Dr Lowe.

"Its policy decisions over recent months will help here. These decisions are complementary to the significant steps taken by Australian governments to support jobs and economic growth."

Why ASX investors are the lucky bunch

At least on the gross domestic product (GDP) front, we might not need to wait as long for conditions to return to what they were before COVID.

The RBA's central scenario predicts GDP will recover to the levels at the end of 2019 by the end of 2021.

As I mentioned at the start, ASX investors have much more reason to feel optimistic about the future than other Aussie battlers.

Should you invest $1,000 in A2b Australia right now?

Before you buy A2b Australia shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and A2b Australia wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Contented looking man leans back in his chair at his desk and smiles.
Share Market News

5 things to watch on the ASX 200 on Friday

Will the market finish the week on a high? Let's find out.

Read more »

Person pressing the sell button on a smartphone.
Broker Notes

Sell alert! 3 ASX shares the brokers are calling time on

Brokers say it's time to hit the sell button on these ASX shares.

Read more »

A couple smile as they look at a pregnancy test.
Share Market News

After the recent debacle, what price target does Macquarie have on Monash IVF shares?

Supported by strong industry tailwinds, this ASX stock could be worth a second look.

Read more »

Fancy font saying top ten surrounded by gold leaf set against a dark background of glittering stars.
Share Gainers

Here are the top 10 ASX 200 shares today

It was the ASX's fourth day of gains for the week today.

Read more »

A happy couple drinking red wine in a vineyard.
Best Shares

5 ASX 200 shares just upgraded to strong buy ratings

The experts say these 5 shares are set to rise over the next 12 months.

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Share Market News

What is next for ASX 200 shares after last month's upheaval?

Macquarie reveals its outlook for ASX 200 shares in May in a new research note published today.

Read more »

a man raises his fists to the air in joyous celebration while learning some exciting good news via his computer screen in an office setting.
Share Gainers

Why Cedar Woods, Healius, NextDC, and Platinum shares are charging higher today

These shares are rising on Thursday. But why are investors buying them? Let's find out.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Brainchip, DroneShield, Resolute Mining, and Woodside shares are falling today

These shares are under pressure on Thursday. What's going on?

Read more »