MNI STATE OF PLAY: RBA On Hold As Lockdowns Set To Ease

Plans to re-open the Australian economy to international travel as lockdowns end in the largest states are likely to dissuade the Reserve Bank of Australia from changing monetary policy this week or tweaking its bond-buying program.

The RBA Board meets on Tuesday for its monthly interest rate decision, but there is no expectation that the bank will change interest rates from the current record low of 0.10%, see: MNI INSIGHT: Wage Weakness Spurred RBA QE Extension.

The current bond buying program, which is now set at weekly purchases of AUD4 billion per week until mid-February is expected to stay in place. The purchases decreased from AUD5 billion per week in September.

LOCKDOWS TO EASE

An announcement last week by Prime Minister Scott Morrison that Australia would open to international travel from November following the easing of lockdown restrictions in most states plays into the RBA's view that the economic recovery has been "delayed but not derailed".

The economy grew by 0.7% in the second quarter, but the earlier lockdowns in the largest cities of Sydney and Melbourne are expected to deliver negative growth for the third quarter.

RBA Governor Philip Lowe has said that Q3 growth could be -2%, although many economists said this is optimistic. The easing of lockdowns is likely to result in a strong rebound in Q4.

With wage growth and inflation still low, the RBA is not expected to change its view that rates won't be raised before 2024.