RBA holds fire on rate cuts, expects COVID-19 impact to be temporary

October 05, 2021 06:43 PM AEDT | By Furquan Moharkan

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RBA holds fire on rate cuts, expects COVID-19 impact to be temporary — Image source: Representative Image of RBA building. © Eyeofpaul | Megapixl.com

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Highlights

The central bank maintains interest rate and the bond rate.

The bond buying programme is set to continue at AU$4 billion till mid-February.

The impact of COVID-19 is likely to be temporary in nature

The Reserve Bank of Australia (RBA) has decided to maintain the cash rate target at 10 basis points (bps) and interest rate on Exchange Settlement balances near zero level.

The Australian central bank has also decided to maintain the target of 10 basis points for the April 2024 Australian Government bond.

The RBA said it will continue to purchase government securities at the rate of AU$4 billion a week until at least mid-February 2022.

“The Delta outbreak has interrupted the recovery of the Australian economy and GDP is expected to have declined materially in the September quarter,” Philip Lowe, Governor, RBA, said on the monetary policy decision.

The outbreak is affecting many parts of the economy, but the impact is uneven, with some areas facing very difficult conditions while others are continuing to grow strongly, he added.

However, the government expects the impact of COVID-19 to be temporary in nature. Striking an optimistic note, Mr Lowe said that the Australian economy “expected to bounce back” as vaccination rates increase further and restrictions are eased. “Many businesses are now planning for the easing of restrictions and confidence has held up reasonably well,” he added.

Wage and price pressures remain subdued in Australia, the central bank said. In underlying terms, inflation is running at around 1.75% and wages, as measured by the Wage Price Index (WPI), are increasing at just 1.7%, it added.

“While disruptions to global supply chains are affecting the prices of some goods, the impact of this on the overall rate of inflation remains limited,” Mr Lowe said.

The central bank said that it will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range.

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