The RBA has left rates on hold at their effective lower bound of 0.1 per cent at its first meeting of 2021, but unveiled the surprise purchase of an additional $100 billion in government bonds issued by the states and territories – a massive expansion of its QE program.
“In a surprise to the market, the RBA announced that it would expand its quantitative easing program by $100bn today, whilst leaving its other monetary policy settings including the cash rate, yield curve control and the term funding facility unchanged,” said Fidelity’s Anthony Doyle.
“Whilst speculation has been growing amongst economists that the RBA may soon begin to tinker with its policy settings, it is far too soon to be thinking about tightening any form of monetary policy. It isn’t clear how much long-term damage has been done to the hospitality and tourism sectors, and as the Federal Government’s fiscal measures such as the JobKeeper scheme begin to roll off, household incomes will begin to come under pressure.”
The announcement comes as the Morrison government turns its gaze away from stimulus support and towards the recovery, promising to have every Australian vaccinated by October and tamping down on calls for more JobKeeper and permanent changes to JobSeeker. However, the RBA anticipates that it will keep rates on hold for the foreseeable future.
“The board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently,” governor Philip Lowe wrote.
“This will require significant gains in employment and a return to a tight labour market. The board does not expect these conditions to be met until 2024 at the earliest.”
More insight can be expected on Wednesday, where Governor Lowe will deliver his forecast for 2021 at the National Press Club. Governor Lowe will also front the standing committee on economics on Friday.
