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MNI STATE OF PLAY: RBA Unfazed By Omicron Or Inflation

MNI (Sydney)
SYDNEY (MNI)

As it ends 2021, the Reserve Bank of Australia’s outlook has remained unchanged as it considers the uncertainty of the Omicron variant on one hand and the outlook for inflation on the other.

At Tuesday’s board meeting the RBA kept its main policy settings unchanged, maintaining official interest rates at a record low 0.10% and committing to purchase AUD4 billion in government bonds a week until the next meeting in February, when the programme will be reviewed.

The RBA statement differed from those of recent months in that it mentioned the actions of other central banks and also noted the recent depreciation of the Australian dollar, which is around its lows for the past year. While noting the depreciation of the currency, the RBA did not comment on its implications.

The RBA said the actions of other central banks would be considered when it reviewed its bond buying programme in February, by which time it would have purchased AUD350 billion in Australian government and semi-government bonds.

VARIANT, PRICES, WAGES

While describing the Omicron variant as a “new source of uncertainty”, the RBA believes that it will not derail the recovery which should see the economy return to its pre-Delta path in the first half of 2022.

On inflation, the RBA continues to see its rise as sluggish in comparison to other developed economies, with many of the factors driving current inflation “transitory”. At 2.1%, underlying inflation has moved into the central bank’s 2% to 3% target range for the first time in more than five years, but is forecast to climb slowly to only 2.5% over 2023.

Wage growth remains key to getting inflation sustainably into the mid-point of the target range, creating the conditions for an interest rate rise the RBA says is possible in either late 2023 or as late as 2024. Wage growth is forecast at 2.5% over 2022 and rising to 3% over 2023.

The RBA last cut rates in November 2020 by 15 basis points down to 0.10%

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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