MNI REVIEW: RBA Holds Rates But Says More QE Possible

The Reserve Bank of Australia said Tuesday it remains prepared to expand its quantitative easing program based on the outlook for jobs and inflation although it left policy settings unchanged, citing the recovery underway.

In its statement, the central bank said it is keeping the size of its bond purchase program "under review, particularly in light of the evolving outlook for jobs and inflation."

"The Board is prepared to do more if necessary," the statement said.

As widely expected, the RBA left official rates unchanged at the record low of 0.10% at its final meeting for 2020 and confirmed other policy settings, such as its yield control program for the benchmark three-year Australian government bond and the AUD100 billion QE program for longer dated bonds.

WAGES

The RBA has a dual mandate to address employment and inflation, but has increasingly focused on employment as Australia fell into recession this year for the first time in more than 25 years.

Tuesday's statement presented employment as a precursor to any increase in inflation, which at 0.7% is well outside the 2-3% target.

Wage growth needs to be "materially higher" and significant gain in employment is needed before inflation could begin to move towards the target, the RBA said, before repeating its guidance that rates would not rise for three years.

The central bank cut rates and announced the QE program in November.