RBA says QE cut, ending May, is in line with Bloomberg forecast


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(Bloomberg) – The Reserve Bank of Australia said cutting its bond buying program at the first meeting in 2022 and ending in May was in line with existing forecasts, as policymakers presented an optimistic view economy.

The RBA’s board discussed two more options for quantitative easing: It could cease buying in February if better-than-expected progress is made towards its employment and inflation targets, according to the report by the Dec. 7 meeting released Tuesday. The third option was to gradually reduce in February and review in May if progress was slower.

“These options reflected the hope that the economy would continue to rebound,” the minutes said. “The emergence of the omicron variant was a new source of uncertainty, but it was not expected to derail the recovery.”

The RBA debate comes at a time when global counterparts are stepping back on their stimulus measures to counter mounting inflationary pressures. The RBA’s final decision will be announced on February 1, the first meeting of 2022, giving policymakers time to assess the economy, with readings on inflation, the labor market, and retail sales expected in the months. weeks to come.

The bank also said the risks for the takeover of the omicron variant would also be clearer by February.

“Timely indicators suggest that economic activity, especially household consumption, is recovering strongly,” the minutes said. “Leading indicators of labor demand point to a strong recovery in labor market conditions in the coming months.”

The board met ahead of employment data last week which showed record hires in November and an unemployment rate plummeting to 4.6%.

Earlier this month, Governor Philip Lowe said any decision to end quantitative easing is separate from the timing of the first interest rate hike, adding that moves by other central banks will also have a impact on what the RBA does with quantitative easing.

The central bank reiterated today that rates will not be raised from the current record high of 0.1% until real, unanticipated inflation is durably within the target range of 2-3%. of the central bank.

“This will require that the labor market is tight enough to generate significantly higher wage growth than it currently is,” the RBA said in the minutes. “It will probably take some time and the board is prepared to be patient.”

The RBA faces a changing tide on global monetary policy. The Federal Reserve last week announced plans to accelerate its own cut and signaled a likely faster pace of rate hikes in 2022.

Similar factors are occurring in Australia’s 2.1 trillion Australian dollar ($ 1.5 trillion) economy, with job growth exceeding all expectations, rising consumer spending and strong business confidence. But inflation is still lukewarm, one of the main reasons the RBA has reiterated its low rates message for longer.

A downside risk is the omicron variant of the coronavirus which spreads quickly. New South Wales, where Sydney is the state capital, recorded a record 3,057 infections on Tuesday, up from 2,501 on Monday. The spike in cases comes as state authorities move forward with a rollback of virus restrictions.

Nonetheless, the bank maintained its bullish tone, noting that service industries were about to receive a boost.

“The export outlook for travel and education has improved somewhat due to the reopening of international borders earlier than expected,” the minutes said. “Education exports were to contribute to GDP growth in the years to come. ”

© 2021 Bloomberg LP

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