Surprisingly, the RBA remained optimistic about the economic outlook despite the lockdown in various states over the past weeks. At today’s meeting, the members decided to go ahead with QE tapering from September and upgraded economic forecasts.
The central bank maintained a upbeat view over Australia’s economy. As governor Philip Lowe suggested, “the experience to date has been that once virus outbreaks are contained, the economy bounces back quickly”. He added that, “prior to the current virus outbreaks, the Australian economy had considerable momentum, and it is still expected to grow strongly again next year. The economy is benefiting from significant additional policy support and the vaccination program will also assist with the recovery”. The RBA upgraded its economic growth forecast to +4% in 2022, from +3.5% previously. The unemployment rate is expected to drop to 4.25% next year, from the previous projection of 4.5%.
The monetary policy remains unchanged from what was announced in July. On asset purchases, the weekly purchase of AUD5B will continue until early September. After that, it will be trimmed to AUD4B until at least mid November. The cash rate stays unchanged at 0.1% and policymakers reiterated the forward guidance that no rate hike is likely until 2024. The measures aim at achieving RBA’s inflation target between 2-3%. As the central bank reiterated, “meeting this condition will require the labor market to be tight enough to generate wages growth that is materially higher than it is currently”.