RBA Leaves MonPol Settings unchanged; Announces QE Extension
- Published on
- 02 Feb 2021, 03:34 PM
By Sophia Rodrigues
The Reserve Bank of Australia left its key monetary policy settings unchanged on Tuesday but surprised with earlier-than-expected announcement of an extension to the Quantitative Easing program.
Following the first board meeting of 2021, the RBA said it will purchase an addition A$100 billion of Australian government bonds and semis when the current program is completed in mid-April. The additional purchases will be at the same rate as the current one at A$5 billion a week.
Importantly, the RBA retained the timeframe, albeit with some tweaks in the language, for when it expects conditions that will favor an increase in cash rate.
The RBA said it doesn’t expect those conditions to be met “until 2024 at the earliest.” In November and December, the RBA said it is not expecting to increase the cash rate “for at least 3 years.”
The guidance was unchanged – the RBA will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range, and for this to occur wages growth will have to be materially higher than it is currently.
Both the above happened despite the RBA upgrading GDP and employment forecasts. The RBA is now expecting GDP to return to its end-2019 level by the middle of this year versus previous forecast for end of the year. The RBA also expects the jobless rate to fall to 6% by end-2021, one year earlier than previously forecast.
Below are the key headlines:
--QE extension of A$100 billion after current program ends in mid-April; A$5 billion at week
--Not expecting conditions requiring rate rise to be met until 2024 at the earliest.
--Inflation, wage growth to pick up only slowly, remain below 2% next couple of years
--Exchange rate up, at upper end of range of recent years
--Central scenario is for jobless rate of 6% end of 2021
--Remains committed to maintaining highly supportive monetary conditions until its goals are achieved.
--Contact: Sophia@centralbankintel.com