historical experience upon which to draw. in the past 4 decades, the only time that australia has had an unemployment rate close to 4 per cent was during the peak of the resources boom. so there is some uncertainty about how aggregate wages will respond at lower rates of unemployment. given this lack of historical experience, 2 of my colleagues at the rba – james bishop and emma greenland – have approached this issue from a different angle. [ 2 ] in particular, they have examined the relationship between the unemployment rate in nearly 300 individual local labour markets across australia and the average increase in labour income in these markets using data from the australian taxation office. the results are shown in graph 12. the vertical axis shows how much growth in income in a particular labour market varies from the average and the horizontal axis shows the unemployment rate in each of the local labour markets. graph 12 employee income growth and unemployment employee income growth * ( deviation from overall average ) based on 289 local labour markets for the period 1998 / 99 – 2017 / 18 ppt 1. 5 estimated relationship 1. 0 0. 5 0. 0 - 0. 5 - 1. 0 - 1. 5 unemployment rate % * average of all labour markets with a particular unemployment rate ( to the nearest 0. 1 ppt ) in a given year ; the size of each dot is proportional to the number of region - year observations at each level of unemployment sources : abs ; national skills commission ; rba these results suggest a clear relationship : the lower unemployment is, the higher is relative income growth. this relationship is stronger when the unemployment rate in a local labour market dips below 5 per cent and strongest when unemployment dips below 4 per cent. while these results are subject to a range of qualifications, they suggest a couple of conclusions. first, tighter labour markets do generate stronger wage increases – the laws of supply and demand still work. and second, the relationship seems to be stronger at unemployment rates below 5 per cent. these are important conclusions from a policy perspective, especially given the rba's strategy is to get the unemployment rate down so that wages growth picks up and inflation returns in a sustainable way to the target range. monetary policy this brings me to our monetary policy decisions earlier this week. at our meeting on tuesday, the reserve bank board agreed to : retain the april 2024 bond as the bond for the yield target and retain the target of 10 basis points continue purchasing government bonds after the completion of the current bond purchase program in early september.

we will purchase $ 4 billion a week until at least mid november maintain the cash rate target at 10 basis points and the interest rate on exchange settlement balances of zero per cent. these measures will provide the continuing monetary support that the economy needs as it transitions from the recovery phase to the expansion phase. they will help lower unemployment and underemployment further and, in time, see inflation return to the 2 to 3 per cent target range. the board is committed to achieving the goals of full employment and inflation consistent with target. the bond purchase program is helping us to make progress towards those goals. we decided to continue purchasing bonds because we are still some way from reaching those goals. however, at the same time we are responding to the stronger - than - expected economic recovery and the improved outlook by adjusting the amount purchased each week. this is consistent with the framework that we previously set out. under that framework, bond purchases are reviewed in terms of : their effectiveness ; the decisions of other central banks ; and, most importantly, the progress towards our goals for inflation and employment. we are seeking to provide as much guidance about future bond purchases as we reasonably can in an uncertain world, while retaining the flexibility to respond in a timely way to changes in the state of the economy and the outlook. so we will be reviewing the size of our bond purchases again at our november meeting. in terms of interest rates, the condition that the board has set for an increase in the cash rate is that inflation is sustainably within the 2 to 3 per cent range. it is not enough for inflation to be forecast in this range. we want to see results before we change interest rates. the bond purchases will end prior to any increase in the cash rate. for inflation to be sustainably in the 2 to 3 per cent range, it is likely that wage growth will need to exceed 3 per cent. that is on the basis that labour productivity continues to increase and that the labour share of national income remains broadly steady. the current rate of wage growth is materially less than 3 per cent. partly for the reasons i have discussed, we still expect the lift in aggregate wages growth will be gradual. we also expect that it will take until 2024 for inflation to be sustainably within the 2 to 3 per cent target range. i would like to close by reiterating the 2 points i made earlier in the week. the first is that the condition for an increase in the cash rate depends upon the data