MNI BRIEF: Recovery Faster Says RBA, but Support Still Needed

The Reserve Bank of Australia said the domestic economic recovery has "run faster than expected," but even under its new baseline scenario, the key indicator of inflation will be well below the central bank's target range of between 2% and 3% by June 2023.

The RBA's Statement on Monetary Policy, released on Friday, forecast inflation at 1.75% by June 2023, the extent of the bank's forecast window. The RBA said it will not raise interest rates from the current historic low of 0.10% until inflation moves into its target range.

The RBA's main policy weapon is now its Quantitative Easing and yield control bond-buying programs, which it said has held yields on Australian Government long-term bonds at "about 30 basis points lower" than they would otherwise have been, in addition to dampening the exchange rate.

The RBA extended its QE program by another AUD100 billion this week, largely in response to easing measures from other central banks which would have put "unwelcome" upwards pressure on the AUD.

The SoMP noted that RBA bond purchases to date equalled about 7% of GDP, compared with 15% for the Bank of England and 11% for the U.S. Fed.