Tuesday, 7 December 2021

RBA Stayed Put, Cautiously Optimistic Over Domestic Economy

RBA Stayed Put, Cautiously Optimistic Over Domestic Economy

The RBA left the cash rate unchanged at 0.1% and the asset purchase program at AUD 4B/week. Policymakers maintained a cautiously optimistic outlook over economic recovery despite Omicron uncertainty. Again, policymakers reiterated that the next meeting (February) would be the time to discuss the pace of QE purchases.

The central bank remained cautiously optimistic over domestic economic developments. As noted in the statement, household consumption was “rebounding strongly” and the outlook for business investment “has improved”. Concerning the new variant Omicron, the central bank suggested that it was “a new source of uncertainty, but it is not expected to derail the recovery“. Policymakers also acknowledged the strong inflation. Yet, they did not appear very concerned about it. According to the statement, “while inflation has picked up, it remains low in underlying terms. Inflation pressures are also less than they are in many other countries, not least because of the only modest wages growth in Australia”. The central forecast for underlying inflation is “+2.5% over 2023.”

On the monetary policy, policymakers reiterated that they would be “patient” in hiking the cash rate from the current 0.1%. They noted that a rate hike would come when “actual inflation is sustainably within the 2 to 3% target range”. Same as the last meeting, they noted that “this will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently”. The central bank also maintained the pace of quantitative easing (QE) at AUD4B/week. Again, the RBA indicated “By mid February, the RBA will hold a total of AUD350B of bonds […] with these holdings providing significant support to the economy”. It noted three criteria for considering the adjustment: 1) the actions of other central banks; 2) how the Australian bond market is functioning; and 3) the actual and expected progress towards the goals of full employment and inflation consistent with the target.

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December 07, 2021 at 11:20PM
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