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Highlights
- The Reserve Bank of Australia (RBA) seems optimistic that quantitative easing could come to an end in 2022.
- Due to changing headwinds, a clearer viewpoint on policy action could be expected in February 2022.
- The central bank does not see interest rates rising anytime soon.
After toiling through 2021 with a series of upgrades to the existing policies, the Reserve Bank of Australia (RBA) finally seems optimistic that quantitative easing could end in 2022. As per the RBA, if conditions remain favourable, then it would gradually remove the expansionary measures that had been implemented after the first stage of lockdowns.
The minutes of the December monetary policy meeting released recently reveal that the central authority is now looking to end its AU$4 billion a week bond buying. The decision has been taken on the back of the central bank’s confidence regarding the economic outlook for 2022.
The confidence stemmed largely from the upbeat economic data recorded by the end of 2021. Consumption has picked up from the long slump that came after the Delta variant induced lockdowns. Additionally, the labour market seems to be recovering in a much desirable fashion, stirring speculations of an impending rise in wages. These speculations were awakened as job listings rose from October to November.
Policy timeline susceptible to changing headwinds
The outbreak of the Omicron variant has, once again, caused global commotion and worried experts. Since the full effects of the variant are not known yet, experts must tread cautiously in the following months. Considering this newly roused fear, the Reserve intends to wait till February and examine the extent of the new strain’s effect. Therefore, a clearer viewpoint on policy action could be expected on February 1, when the RBA meets for its next and 2022’s first monetary policy meet.
Additionally, upcoming data on inflation, labour market and retail sales are expected to aid the government in assessing the economic situation in the coming week. If these economic indicators continue to improve, some expansionary measures could end as early as February 2022. However, with fears surrounding the new strain looming ahead, this timeline could be subject to change.
Conversely, the RBA could choose to act after the data on leading indicators is released. The RBA discussed the possibility of easing measures in the expectation of ending the quantitative easing program by May 2022. Another possibility discussed during the meeting was reviewing the program in May, with contractionary measures progressing alongside.
RBA’s stance on interest rates
The RBA’s comments on interest rates echoed the apex bank’s longstanding silence on the subject. The RBA has failed to deliver a timeline that goes in line with market expectations of a rate hike. In the meeting minutes, the RBA indicated that rates would not be lifted anytime soon from their current all-time low of 10 basis points.
Thus, while many other economic indicators are giving a positive outlook, the RBA wants to wait for inflation and wages to meet the set targets. Meanwhile, border reopening in 2023 is expected to push up economic growth to some extent.
In a nutshell, RBA is most likely to be able to sort out its priorities in the initial months of 2022, based on data on economic indicators as well as information on the spread of the new variant.
