Uncertain outlook in coming months: RBA

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)


The Reserve Bank of Australia says the economic outlook for the coming months is uncertain, but has kept its interest rate policies unchanged at its monthly board meeting.

That includes keeping the cash rate at a record low 0.10 per cent, which the RBA reiterated will not increase until inflation is sustainably within the two to three per cent target.

“The economic recovery in Australia has been stronger than was earlier expected,” Reserve Bank governor Philip Lowe said in a statement on Tuesday.

“The recent outbreaks of the virus are, however, interrupting the recovery and GDP is expected to decline in the September quarter.”

However, Dr Lowe said the experience to date has been that once virus outbreaks are contained, the economy bounces back quickly.

“Prior to the current virus outbreaks, the Australian economy had considerable momentum and it is still expected to grow strongly again next year,” he said.

The board has decided to stick to its plan to reduce its bond buying program to $4 billion a week from early September from $5 billion currently.

Economists had speculated that the RBA would delay a reduction in the program – which aims to keep market interest rates and borrowing costs low – because of the expected deterioration in the economic outlook.

However, Dr Lowe says the board will maintain its flexible approach to the rate of bond purchases.

“The program will continue to be reviewed in light of economic conditions and the health situation, and their implications for the expected progress towards full employment and the inflation target,” he said.

As it is, the RBA does not expect its inflation target to be met before 2024 and will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently.

“The RBA clearly stands ready to maintain its stimulus support for the Australian economy, but they’ve effectively done all they can,” CreditorWatch chief economist Harley Dale said.

“The dynamic of the Australian economy has changed substantially in the past month, and the ball is now in the court of the federal government.”


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