RBA Tapers Bond Purchase Program To Account For Stronger Economic Recovery

By Sophia Rodrigues

(Sydney, July 6, 2021)—The Reserve Bank of Australia committed to a continuation of its monetary policy easing but at a slower rate by announcing a tapering of its bond purchase program starting later this year.

The tapering is in response to the stronger-than-expected economic recovery and the improved outlook.

The RBA also retained the April 2024 bond as the bond for its 0.1% yield target but softened language on the forward guidance that now indicates some possibility of cash rate hike before 2024.

Following the board meeting Tuesday, the RBA left the cash rate target at 0.1% and the interest rate on Exchange Settlement balances at zero.

The RBA said it will continue its bond purchase program beyond September because the economy remains “some distance from the inflation and employment objectives.” But the pace of purchases would be lower at A$4 billion a week after September and until at least mid-November to reflect the stronger-than-expected economic recovery and improved outlook.

The RBA would review the weekly pace at the November board meeting. The mix of purchases would be 80% AGS and 20% Semis, as before.

The RBA said its central scenario is that the condition for cash rate hike “will not be met before 2024.” This is a softening of the previous guidance that the condition is “unlikely to be until 2024 at the earliest.”

It also means that the RBA’s upside scenario would have possibility of cash rate hike before 2024.

The RBA retained the key state-based guidance that it will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range. The RBA said meeting the conditions for cash rate hike will require the labor market to be tight enough to generate wages growth that is materially higher than it is currently.

The language on the housing market was largely unchanged, with the RBA noting that housing market had continued to strengthen, and it is important to maintain lending standards.

--Contact: Sophia@centralbankintel.com