RBA Sticks To QE Taper Decision But Comforts With Commitment On Pace Till Mid-Feb

By Sophia Rodrigues

(Sydney, September 7, 2021)—The Reserve Bank of Australia stuck to its decision to taper bond purchases but provided some comfort to the market by committing to the tapered A$4 billion weekly pace until at least mid-February.

The outcome was in line with CB-Intel’s analysis though economists were divided on whether the RBA will backtrack on taper or continue with the July announcement to taper to a weekly pace of A$4 billion.

CB-Intel was the first to predict last month that RBA will opt to stick to A$4 billion until February, and this month predicted the RBA would announce it in the statement.

In the statement Tuesday, the RBA maintained that the recovery in the Australian economy has been “interrupted” by the Delta outbreak but this time acknowledged that GDP is expected to decline “materially” in the September quarter, with “materially” being the addition.

The RBA also changed its language on the unemployment rate, saying it will move higher over coming months versus last month when it said that “some increase” is expected in the near term.

Still, the overall commentary was not as downbeat as many would have expected because the RBA expects the setback to the economic expansion to be only temporary.

“The Delta outbreak is expected to delay, but not derail, the recovery,” the RBA said, even as it added that the timing and pace of this bounce-back is likely to be slower than earlier in the year.

Importantly, the RBA expects the economy will be growing again in the December quarter and to be back around its pre-Delta path in the second half of next year.

The RBA said the decision to extend the bond purchases at $4 billion a week until at least February 2022 reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak.

The RBA maintained its guidance that it will not increase the cash rate until actual inflation is sustainably within the 2% to 3%target range and the central scenario for the economy is that this condition will not be met before 2024.

--Contact: Sophia@centralbankintel.com