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Summary
- The Reserve Bank of Australia (RBA) on Tuesday kept the interest rates unchanged at 0.1 per cent and maintained its commitment towards the quantitative easing programme.
- The decision to persist with quantitative easing in the form of bond-purchase follows the surge in yields in recent days.
- The Board also reiterated that it would not revise cash rate upwards until actual inflation was sustained between 2 per cent and 3 per cent.
The Reserve Bank of Australia (RBA) on Tuesday kept the interest rates unchanged at 0.1 per cent and maintained its commitment towards the quantitative easing programme. The Board also reiterated that it would not revise cash rate upwards until actual inflation was sustained between 2 per cent and 3 per cent.
The RBA last slashed the interest rates in November 2020, when it began with its quantitative easing programme via purchase of A$100 billion of Australian federal and state government bonds. In February 2021, the central bank extended the bond-buying programme for further 20 weeks after the end of the first phase in mid-April.
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Bond purchase follows surge in yields
The decision to persist with quantitative easing in form of bond-purchase follows the surge in yields in recent days. On Monday, the RBA purchased A$4 billion in government bonds to ease yields.
A cumulative A$74 billion of government bonds issued by the Australian Government, states, and the territories, have been purchased so far under the initial A$100 billion program, said Philip Lowe, Governor RBA, in his monetary policy statement. An additional A$100 billion would be bought after the initial programme ends, added Lowe.
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Outlook
Lowe said that the global economic outlook had improved over the months amid roll-out of coronavirus vaccines. The global trade saw an uptick and commodity prices have also surged over recent months. The Australian dollar continues to remain in the upper end of the range in recent years.
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About the domestic economy, Lowe said that the recovery was on track and much stronger than expected earlier. The employment had seen strong growth and the unemployment rate fell to 6.4 per cent. The retail spending has remained strong recently. The gross domestic product is expected to rebound to the 2019-end level by the mid-2021.
Lowe further said that the current monetary policy settings were helping to keep the financing costs low.
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