The Reserve Bank of Australia held official interest rates at record low levels and kept its quantitative easing program unchanged at $5 billion a week in bond purchases in a modest reaction to the worsening lockdowns in Sydney and Southeast Queensland.
Following its monthly meeting on Tuesday, the RBA board held the cash rate at 0.10% and decided not to cut its bond buying to $4 billion a week right away from $5 billion as decided at the July meeting.
The bank will continue the $5 billion a week purchases until early September and then $4 billion a week, until at least mid-November as planned in July.
That compares to the July decision to “continue purchasing government bonds after the completion of the current bond purchase program in early September. These purchases will be at the rate of $4 billion a week until at least mid-November.”
Some economists had forecast that the new Covid Delta driven lockdowns would see the quantitative easing’s bond buying pushed out into 2022. Instead, the statement suggests it will still end in November.
Lowe’s statement contained some details from the new economic forecasts contained in Friday’s third Statement on Monetary Policy for the year. These included higher forecasts for economic growth and inflation, but also an admission that the current lockdowns would see GDP contract in the current, September quarter.
Governor Lowe said while the national economic recovery had been stronger than expected, the recent lockdowns would probably result in GDP contracting in the September quarter.
“The experience to date has been that once virus outbreaks are contained, the economy bounces back quickly. Prior to the current virus outbreaks, the Australian economy had considerable momentum and it is still expected to grow strongly again next year,” he said.
“The economic outlook for the coming months is uncertain and depends upon the evolution of the health situation and the containment measures.”
Dr Lowe said the bank’s central scenario was for the economy to grow “by a little over 4 per cent” over 2022 (4% in the May forecasts) and then by 2.5% in 2023.
He said that scenario is based on a significant share of the population being vaccinated by year’s end and a gradual opening of the international border from the middle of 2022.
Dr Lowe said the lockdown was likely to see a near-term lift in unemployment but most of the impact on the labour market would be from a reduction in hours worked.
He said a lift in wages growth, which the RBA believes needs to be above 3 per cent to help lift inflation to its 2 to 3 per cent target band, would be only gradual.
“In the bank’s central scenario, it takes some years for the stronger economy to feed through into wage and price increases that are consistent with the inflation target,” he said.
The RBA statement was seen as being “hawkish” by some commentators and the Aussie dollar bumped up to be close to 74 US cents – up around half a cent, while the ASX lost 16 points or so in a lacklustre day that started well with a new all-time high for the ASX 200 at 7,492. It ended around 7,474.
