CBA, Westpac and ANZ all stated that they believed the RBA would postpone the planned tapering in the wake of the economic damage caused by ongoing lockdowns in NSW and Victoria.
NAB and Macquarie correctly predicted that the RBA would proceed as planned, citing the lockdowns have not proven a big enough setback, with a sharp rebound expected once restrictions ease.
Speaking on the decision to push ahead with tapering, RBA governor Philip Lowe highlighted the considerable momentum seen in the Australian economy prior to the Delta outbreak.
“GDP increased by 0.7 per cent in the June quarter and by nearly 10 per cent over the year,” said Mr Lowe.
“Business investment was picking up and the labour market had strengthened. The unemployment rate had fallen below 5 per cent and job vacancies were at a high level.”
Despite this being a setback, with GDP set to decline in the September quarter and unemployment set to rise, the RBA said they felt the impact of this would only be temporary, with growth expected in the December quarter.
“The Delta outbreak is expected to delay, but not derail, the recovery,” Mr Lowe said.
“As vaccination rates increase further and restrictions are eased, the economy should bounce back.
“In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year.”
Despite the belief shown in the Australian recovery, the RBA acknowledged that there is still uncertainty around the pace this will occur at, particularly as Australian states squabble over acceptable conditions for an easing of restrictions.
“There is, however, uncertainty about the timing and pace of this bounce-back and it is likely to be slower than that earlier in the year,” Mr Lowe admitted.
“Much will depend on the health situation and the easing of restrictions on activity.”
In light of this uncertainty, Mr Lowe confirmed that the RBA will purchase bonds at this rate until at least mid-February 2022, rather than to “at least mid-November” as previously flagged.
“The board will continue to review the bond purchase program 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.
Undeterred by these considerations, the decision to taper has been met with ire in some quarters.
Anthony Doyle, director, cross-asset investment specialist at Fidelity described the decision to taper as “a step in the wrong direction for monetary policy at this point in time”.
“With unemployment likely to rise materially in Q3, and wages rising by a tepid 1.7% over the year to the end of June 2021, more has to be done to drive the economy towards full employment in the short term,” he said.
“A weaker currency and lower bond yields via an expansion of the QE programme would have assisted in meeting the inflation and employment goals of monetary policy, and arguably an increase in bond purchases – rather than a reduction – should have been announced at today’s meeting”.
