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The Reserve Bank of Australia is recognizing the damage the extended pandemic lockdowns are doing to the economic recovery, prompting an extension of its bond buying programme "until a least mid-February" next year as it left rates on hold at a record low 0.10%.
The RBA had previously said, albeit narrowly in August, that the lockdowns in place in the two largest cities of Sydney and Melbourne had not changed its base case scenario for the economy. But the decision on Tuesday showed a strong change in that view.
"The recovery in the Australian economy has, however, been interrupted by the Delta outbreak and the associated restrictions on activity," Governor Philip Lowe said in a statement.
"GDP is expected to decline materially in the September quarter and the unemployment rate will move higher over coming months. While the outbreak is affecting most parts of the economy, the impact is uneven, with some areas facing very difficult conditions while others are continuing to grow strongly."
TAPER DELAY NOT UNEXPECTED
The RBA said the decision to continue bond purchases at a pace of AUD5 billion "reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak" and was not a complete surprise, see: MNI STATE OF PLAY: Lockdowns Could See RBA Delay Taper.
The bank still sees the any setback to economic expansion as "only temporary" and the Delta outbreak was expected to "delay, but not derail, the economy" over the longer term.
There were some expectations that the RBA might also change its language on the timing of any interest rate rise, but the bank repeated its view that conditions for a rate rise were not likely to be met "before 2024."