- RBA moves ahead with plans to scale down its stimulus measures despite the current economic ramifications of ongoing lockdowns
- The central banks kept the cash rate and April 2024 Australian government bond targets at 0.10 per cent
- The bank will also continue to purchase government securities at the rate of $5 billion a week until early September, and then $4 billion until mid-November
- RBA governor Phillip Lowe said the economic recovery is expected to continue once restrictions ease
- The bank’s central scenario is for the economy to grow by a little over four per cent over 2022 and by around 2.5 per cent over 2023
Recent COVID-19 outbreaks are interrupting economic recovery in Australia, but the Reserve Bank of Australia (RBA) still plans to push ahead with winding back its weekly bond purchases.
Reserve Bank of Australia governor Phillip Lowe announced today that the central bank is maintaining the cash rate and April 2024 Australian government bond targets of 0.10 per cent.
Mr Lowe reiterated that it will not increase the cash rate until inflation is within the two to three per cent target range, which is not forecasted to be met until 2024.
The bank will also continue to purchase government securities at the rate of $5 billion a week until early September, and then $4 billion until mid-November.
It came as a shock to some who expected the bank would delay the $1 billion reductions on the back of the current economic impact of the lockdowns.
The mood going into this meeting is dramatically different than last month, COVID-19 cases in Sydney have skyrocketed, the lockdown extended and restrictions tightened.
South Australia and Melbourne have experienced periods of lockdown in the last month and Queensland just recently plunged into an extended lockdown.
Despite the doom and gloom of the current situation, Mr Lowe said the economic recovery is set to continue once restrictions ease.
“The economic recovery in Australia has been stronger than was earlier expected. The recent outbreaks of the virus are, however, interrupting the recovery and GDP is expected to decline in the September quarter,” he said.
“The experience to date has been that once virus outbreaks are contained, the economy bounces back quickly.”
Mr Lowe said the bank will remain flexible on its rate of bond purchases and will continue to be reviewed in light of economic and health conditions.
He pointed out that prior to the current outbreaks, the economy had considerable momentum which is expected to carry on into next year.
“The economic outlook for the coming months is uncertain and depends upon the evolution of the health situation and the containment measures,” he said.
“Beyond that, the bank’s central scenario is for the economy to grow by a little over 4 per cent over 2022 and by around 2½ per cent over 2023.”
Mr Lowe noted that this modelling is based on a scenario in which a “significant share” of the population is vaccinated by the end of the year, while international borders are gradually opened from the middle of 2022.
AMP Capital chief economist Shane Oliver said the RBA is still a long way from meeting its conditions for a rate hike.
“Namely inflation sustainably back in the 2-3% target range which will require full employment and wages growth sustainably above 3%,” he said.
“And the latest coronavirus outbreaks and lockdowns risk delaying progress towards its goals.”