RBA delays more tapering of its bond-purchase program to ‘at least February’ in the wake of Delta impact
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At its monthly board meeting earlier today, the RBA board decided to keep rates on hold and keep its bond buying going over the summer.
Ahead of the decision, there was some chatter in markets about whether the bank would reverse its bond-purchase tapering program, after it reduced monthly purchases to $4bn from $5bn.
In the end there was no reversal, and the bank will maintain monthly purchases at $4bn. But it did confirm that those monthly $4bn purchases will extend all the way to “at least” February, before any additional tapering is considered.
It was only a few months ago it signalled the program would be winding up, but COVID-19 has forced the board’s hand to some extent as it responds to the economic impact of Delta lockdowns.
The RBA board said the move reflected the delay in the economic recovery due to the Delta outbreak.
“The recovery in the Australian economy has, been interrupted by the Delta outbreak and the associated restrictions on activity,” it said.
“GDP is expected to decline materially in the September quarter and the unemployment rate will move higher over coming months.”
The board said it expected the impact would only be temporary even if uncertainty remained as to just when the bounce back would happen.
“The Delta outbreak is expected to delay, but not derail, the recovery,” it said
“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.”
“Much will depend on the health situation and the easing of restrictions on activity.”
While the RBA tips GDP to return to growth in the December quarter, it could take until the second half of next year to reach its pre-Delta path.
It said it would do whatever it took to reach full employment and target inflation once more, even though it thinks it will take three years for this to happen.
And there are still no changes to the bank’s long-held conviction on interest rates:
“The central scenario for the economy is that this condition will not be met before 2024,” the RBA said.
“Meeting this condition will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently.”