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Australia Central Bank Retains Policy; Lifts Growth Outlook

rba rate decsion 040318 04may21 lt

Australia's central bank kept its policy stance unchanged as widely expected, and said it will review the asset purchase programme at its July meeting. The bank raised its growth projections and lowered the unemployment rate forecast.

The policy board of the Reserve Bank of Australia headed by Governor Philip Lowe decided to leave its cash rate unchanged at a record low of 0.10 percent.

The central bank retained the target yield on the 3-year Australian government bond at around 0.1 percent and also maintained the parameters of the Term Funding Facility and the government bond purchase programme.

The bank said it is prepared to expand its asset purchase programme. The decision on the yield target of bond purchases as well as on the further extension of its bond purchase programme will be taken at its July meeting, Lowe said in the statement.

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

For this to occur, the labor market will need to be tight enough to generate wages growth that is materially higher than it is currently, the bank said. This is unlikely to be until 2024 at the earliest.

The governor said the Term Funding Facility which is set to expire in June, will not be extended further.

Given the still subdued outlook for inflation, the RBA is expected to extend its asset purchases by another A$100 billion in July, which would mean that they run until end-January, Marcel Thieliant, an economist at Capital Economics, said. The bank is to hike interest rates in late-2023 rather than wait until 2024.

The bank revised up its GDP growth forecast for 2021 to 4.75 percent from 3.5 percent, while the forecast for 2022 was kept unchanged at 3.5 percent.

Inflation in underlying terms is expected to be 1.5 percent in 2021 and 2 percent in mid 2023. In the short term, CPI inflation is expected to rise temporarily to be above 3 percent in the June quarter because of the reversal of some COVID-19-related price reductions.

The unemployment is seen at 5 percent by the end of this year, versus 6 percent projected in February. The rate is expected to fall to 4.5 percent at the end of 2022.

The RBA is scheduled to issue its quarterly economic forecasts on May 7.

Regarding housing market, the RBA said housing markets strengthened further with prices rising in all major markets. Housing credit growth picked up, with strong demand from owner-occupiers, especially first-home buyers.

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