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RBA sees cash rate staying low until 2024

The Reserve Bank of Australia left the cash rate unchanged at a record low 0.1 per cent at its monthly board meeting, a level it still expects to maintain until 2024.

However, the central bank is sticking with an earlier decision to wind back one of its key stimulus measures, despite a deteriorating economic outlook caused by lengthy coronavirus lockdowns in the nation's two major cities.

RBA governor Philip Lowe said Australia's recovery had been interrupted by the outbreak of the Delta variant and economic growth was expected to decline materially in the September quarter.

"This setback to the economic expansion is expected to be only temporary," Dr Lowe said in a statement following Tuesday's meeting.

"The Delta outbreak is expected to delay, but not derail, the recovery."

He said as vaccination rates increased and restrictions were eased, the economy should bounce back.

However, he said there was uncertainty about the timing and pace of this bounce-back and it was likely to be slower than that earlier in the year.

"In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year," Dr Lowe said.

The central bank will now buy $4 billion worth of bonds per week rather than $5 billion, as announced earlier this year, and a level of purchases it will maintain until at least February 2022.

Its bond-buying program aims to keep market interest rates and borrowing costs low.

Some economists had expected the RBA to delay this winding back, or so-called tapering, to $4 billion a week in light of an expected contraction in the economy.

Separately, the RBA is sticking with its target of keeping the yield, or interest rate, on three- year bonds at 0.1 per cent, and in line with the cash rate.

Dr Lowe reiterated the RBA would not increase the cash rate until actual inflation was sustainably within the two to three per cent target range.

"The central scenario for the economy is that this condition will not be met before 2024," Dr Lowe said.

"Meeting this condition will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently."

© AAP 2021