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Highlights
- Central bank to press ahead with plans to truncate bond-buying spree
- Cash rate maintained as it is – for 131st month a trot.
- RBA Chief calls COVID-19 hit as ‘‘temporary.’
Overall, Australia is not as bad as it was expected after the Delta variant hit the country. However, the recovery rate has been affected due to the outbreak but with the increase in vaccination coverage, extended lockdowns should diminish.
GDP is expected to be 4% over 2022 and 2.5% over 2023, whereas inflation is expected to be 1.75% over 2022 and around 2.25% over 2023.
Demand for Australian goods has increased, leading the terms of trade to reach a record high in September 2021 quarter.
Housing borrowing is carefully monitored, given the environment of raising housing pricing and low-interest rates.
The Australian central bank – Reserve Bank of Australia – will go ahead with its plans to begin reducing its bond-buying stimulus to AU$4 billion a week despite COVID-19 lockdowns hitting the economy. The week also marks the record 130th straight month the RBA has gone without a rate hike.
The central bank, however, has delayed considering any further tapering until next year.
Earlier in the July policy meeting, the RBA had announced its plans to moderate its purchases of government bonds in the secondary market to AU$4 billion a week, from the current pace of AU$5 billion a week – by mid-September.
The RBA also maintains the cash rate target at 10 basis points, while the interest rate on Exchange Settlement balances 0%. The central bank also maintained the target of 10 basis points for the April 2024 Australian Government bond.
This week will mark the 130th consecutive month the Australian central bank has gone without raising the cash rate.
When the Reserve Bank last raised rates, the record length of time a major central bank had gone without a raise was Japan’s central bank, when it went 119 months through pause on the rates throughout the entire 1990s.
The RBA had already broken that record back in November last year, although the Bank of England had in that time set a new record of 123 months. RBA has now broken that record as well.
The RBA governor Philip Lowe called the setback from the COVID-19 pandemic’s third wave temporary. “The Delta outbreak is expected to delay, but not derail, the recovery. Then as vaccination rates increase further and restrictions are eased, the economy should bounce back. There is, however, uncertainty about the timing and pace of this bounce-back and it is likely to be slower than that earlier in the year,” he said.
The market sentiments seemed negative after the announcement as ASX200 was down 0.16%.
