- Minutes of the RBA November meeting revealed that the economy expected to rebound quickly with ease in COVID-19 restrictions.
- Policymakers remained committed to maintaining a highly supportive monetary policy stance.
- RBA officials raised concerns about rising inflation and subdued wage growth.
Australia’s monetary policy committee envisages the need for continued policy accommodation to achieve a return to full employment and inflation consistent with the target, minutes of the November meeting showed.
Reserve Bank board members reiterated their commitment to remain patient until wage and inflation criteria are met. “The Board remained committed to maintaining highly supportive monetary conditions to achieve a return to full employment in Australia and inflation consistent with the target,” read the minutes released on November 16.
The Reserve Bank of Australia (RBA) kept cash rates unchanged at record lows in its monthly policy meeting on November 2, and also calmed nerves regarding the rollback of economic stimulus. The central bank had left the cash rate unchanged at a record low of 0.1% for the 12th consecutive month while it remains committed to continuing buying government bonds at a pace of AU$4 billion a week until at least mid-February 2022.
At the same time, the apex bank decided to scrap the target of 10 basis points (bps) for the April 2024 Australian government bond, which was introduced in March 2020 and the onset of the COVID-19 pandemic. The yield target was part of a stimulus package designed to mitigate the impact of the pandemic on the Australian economy and to support its recovery.
Image Source: © Lucidwaters | Megapixl.com
Key highlights of RBA November Meeting Minutes:
- RBA meeting minutes revealed that the members discussed implications of revisions to the inflation outlook for the bank’s yield target for the April 2024 bond. The decision to end the yield target was taken as policymakers believed that the package had been effective in delivering a substantial easing in financial conditions and had contributed to the economic recovery.
- All nine RBA board members expressed optimism over an economic recovery and were of view that the interruption caused by the highly contagious Delta variant of COVID-19 was limited following ease in travel restrictions.
- Despite most members citing concerns about inflation risks, they said it “remained low in underlying terms”. The members observed that headline inflation was propelled by higher fuel prices and newly constructed homes, as well as strains in global supply chains. A further rise in inflation was expected, but in a gradual manner.
- The members also raised concerns about wages growth which remained subdued during the month under review. The policymakers expect it to increase gradually as the labour market tightens.
- The members observed that for inflation to be between 2-3% on a sustainable basis, the labour market would need to be tight enough to generate materially higher wages growth.
- The Board reaffirmed its previous decision to continue with the bond purchase program at the current rate of purchases until mid-February 2022, when it will be reviewed again. Members agreed that the continuation of the program was appropriate to support the apex bank's goals for inflation and unemployment.
Details of the RBA November meeting minutes indicate that the central bank is in no hurry to raise the cash rate until 2024 at least. The board of the Reserve Bank of Australia discussed issues such as prevailing financial conditions in the country, inflation, unemployment, and the bond purchase program.