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Australia’s central bank has kept its monetary parameters unchanged, betting that there are enough stimulus measures to foster an economic recovery before a gradual reopening of Sydney and Melbourne as vaccination rates rise.
Reserve Bank Governor Philip Lowe kept the spot rate at 0.1% – as expected – during Tuesday’s meeting. Lowe cut weekly bond purchases to A $ 4 billion ($ 2.9 billion) last month, while pushing their next review back to mid-February to help cushion the economic impact of the closures along from the east coast of the country.
“This setback in economic expansion in Australia is only expected to be temporary,” Lowe said in a statement. “As vaccination rates rise further and restrictions are relaxed, the economy is expected to rebound. “
Lowe has maintained his optimistic outlook for the economy as Sydney prepares to ease restrictions after a 15-week lockdown to contain an outbreak of the delta variant. The state of New South Wales vaccination rate is approaching 70%, the first condition for easing, with another reopening to 80%. The governor said the uncertainty lies in the pace and timing of the rebound.
Financial regulators are wondering how to contain the credit boom and a burning real estate market without stifling the economic recovery. The RBA has consistently said it does not plan to hike rates until 2024 at the earliest – leaving stricter lending rules as the only way to dampen the real estate market.
“The Board of Financial Regulators has discussed the medium-term risks to macroeconomic stability of rapid credit growth in an era of historically low interest rates,” Lowe said. “In this environment, it is important that lending standards are maintained and that loan sustainability cushions are appropriate. “
The RBA is due to release its biannual financial stability review on Friday, and loans and housing are expected to feature prominently.
What Bloomberg Economics Says
“Normalization of monetary policy is still a long way off in Australia, and this poses a challenge for policymakers as housing markets react to low borrowing rates. Our reading of the RBA’s post-meeting statement suggests a likely move in the coming months to require borrowers to prove they can meet higher borrowing rates when applying for loans.
– James McIntyre, economist. Read the full note here
The rapid gains in house prices in Sydney and Melbourne come despite prolonged lockdowns, and as rising household debt raises financial stability concerns. The RBA has ruled out a tightening policy to cool asset prices – unlike South Korea, and as New Zealand’s central bank appears poised to do at tomorrow’s meeting – focusing on the push instead. from the economy to full employment.
Lowe today noted contrasting labor market effects of the foreclosure and the prospect of a loosening of curbs. Hours worked fell nearly 4% in August, he said, while adding that the trade liaison suggested many companies want to hire workers before the reopening scheduled for this month and next year. .
The central bank’s quantitative easing program is designed to help keep the currency under control to prevent it from hurting jobs and growth. It has proven successful with the Aussie dollar falling 5% over the past six months, even as Australia posted a record trade surplus in August, fueled by the commodity boom.
(Updates with Bloomberg Economics in eighth paragraph.)
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