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Australia Central Bank Sticks To Tapering Despite Calls For Delay

australia aug20 03aug21 lt

Australia's central bank decided to continue with the scaling back of its bond purchases despite expectations for delaying the tapering process amid the restrictions in place in Sydney and other parts of the country.

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 board maintained the target of 10 basis points for the April 2024 Australian Government bond.

Affirming its decision in July to taper bond purchases, the board said it will continue to purchase government securities at the rate of A$5 billion a week until early September and then A$4 billion a week until at least mid November.

There were widespread expectations that the RBA would delay the tapering of its bond purchases this month in response to the Sydney lockdown.

The bank reiterated that it will not increase the cash rate until actual inflation is sustainably within the 2 to 3 percent target range. The central scenario for the economy is that this condition will not be met before 2024.

Lowe observed that the Australia's economic recovery has been stronger than earlier expected. However, the recent outbreaks of the virus are interrupting the recovery and GDP is expected to fall in the September quarter.

The economic outlook for the coming months is uncertain and depends upon the evolution of the health situation and the containment measures, the banker said.

The bank forecast the economy to grow by a little over 4 percent over 2022 and by around 2.5 percent over 2023.

Some increase in the unemployment rate is expected in the near term due to the current lockdowns, but most of the adjustment in the labor market is likely to take place through a reduction in hours worked and in participation, Lowe noted.

By predicting that it will hit its full employment mandate and make further progress towards its inflation target, it has opened the door for earlier rate hikes than its current guidance of 2024, Marcel Thieliant, an economist at Capital Economics, said.

The RBA will end its purchases by the middle of next year, with the first rate hike happening in early-2023, Thieliant added.

Data released earlier in the day by the Australian Bureau of Statistics showed that building approvals declined for a third consecutive month in June.

The number of dwellings approved fell 6.7 percent in June, following a 7.6 percent decrease in May and a 5.0 percent drop in April.

"Since the unwinding of stimulus measures, approvals for private houses have fallen 20.9 percent from the record high in April," Daniel Rossi, ABS Director of Construction Statistics, said. Despite the fall, private house approvals remain at elevated levels, he noted.

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