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MNI STATE OF PLAY: RBA Staying The Course Despite Lockdowns

MNI (Sydney)

The Reserve Bank of Australia has held to its policy course despite the recent resurgence of the pandemic and maintained all its policy settings unchanged at Tuesday's board meeting.

Interest rates have been held at the record low of 0.10%, the yield target has been maintained on three year government bonds maturing in April 2024 and there has been no change to the program of buying longer dated bonds as expected MNI STATE OF PLAY: RBA Dilemma As Lockdowns Threaten Rebound.

That program will continue at AUD5 billion per week until early September, when the current program ends, and then continue at AUD4 billion per week until November when the purchases will be reviewed.

The RBA said it had a "flexible approach" to bond purchases, and the program would continue to be reviewed "in light of economic conditions and the pandemic and acknowledged that the outlook for the coming months is uncertain and dependent on the "health situation and containment measures".

VACCINATION PACE KEY

However, the RBA's outlook continues to be based on a "significant share" of the population being vaccinated by the end of this year, and for a gradual opening of international borders from the middle of 2022.

Currently, only 15.4% of the population is fully vaccinated.

The RBA acknowledged that growth would decline in the September quarter as a result of the current lockdowns but anticipated a rebound and strong growth in 2022.

MACRO OUTLOOK AND INTEREST RATES

The central scenario is for just over 4% growth in 2022 and 2.5% for 2023.

The RBA's policy is based around an inflation target of 2% to 3% driven by wages growth of around 3% and a labour market with unemployment at just over 4%.

CPI inflation came in at an annualized 3.8% for the year to the end of June, but the RBA focuses more on the trimmed mean which was 1.6%.

Wage growth is at an annualized 1.5% - half of what the RBA is expecting – and June unemployment was at 4.9%, before the new lockdowns, in which many people are likely to have lost their jobs.

The RBA today maintained its earlier view that conditions for an interest rate rise would "not be met before 2024."

MNI Sydney Bureau | +61-405-322-399 | lachlan.colquhoun.ext@marketnews.com
MNI Sydney Bureau | +61-405-322-399 | lachlan.colquhoun.ext@marketnews.com

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