Statement by Philip Lowe, Governor: Monetary Policy Decision
At its meeting today, the Board decided to:
keep the target spot rate at 10 basis points and the interest rate on foreign exchange settlement balances at zero percent
maintain the 10 basis point target for the April 2024 Australian government bond
continue to buy government securities at the rate of $ 4 billion per week at least until mid-February 2022.
The Delta epidemic halted the recovery of the Australian economy and GDP is expected to have declined significantly in the September quarter. The epidemic is affecting many sectors of the economy, but the impact is uneven, with some areas facing very difficult conditions while others continue to grow strongly.
This decline in economic expansion in Australia is only expected to be temporary. As vaccination rates rise further and restrictions are relaxed, the economy is expected to rebound. Many companies are now considering easing restrictions and confidence has held up rather well. However, there is uncertainty as to when and how much the rebound will take place, and it will likely be slower than at the start of the year. Much will depend on the nature and timing of the relaxation of activity restrictions. In our central scenario, the economy will experience further growth in the December quarter and should return to its pre-Delta trajectory in the second half of next year.
Activity restrictions have had a significant effect on the labor market. Hours worked – the best indicator of labor market conditions today – fell almost 4 percent in August. Looking ahead, the Bank’s trade link and job vacancy data suggest that many companies are looking to hire workers ahead of the scheduled reopening in October and November.
The pressures on wages and prices remain moderate in Australia. In underlying terms, inflation hovers around 1¾ per cent and wages, as measured by the wage price index, increase only 1.7 per cent. While disruptions in global supply chains affect the prices of some products, their impact on the headline inflation rate remains limited.
House prices continue to rise, although turnover in some markets has declined as a result of the virus outbreak. Growth in home loans has accelerated due to stronger demand for credit from homeowners and investors. The Board of Financial Regulators discussed the medium-term risks to macroeconomic stability of rapid credit growth in an era of historically low interest rates. In this environment, it is important that lending standards are maintained and that loan sustainability cushions are appropriate.
The Bank’s suite of policies – including record interest rates, the bond purchase program, the yield target, and the financing provided under the Term Finance Facility – provide support substantial and ongoing to the Australian economy. Lending rates are at record highs, sovereign bond yields are at very low levels and the exchange rate has depreciated in recent months. Budget responses from the Australian government and state and territory governments have also provided welcome assistance in supporting household and business balance sheets.
The Council undertakes to maintain very favorable monetary conditions in order to achieve a return to full employment in Australia and inflation in line with the target. It will not increase the spot rate until real inflation is durably within the target range of 2-3%. The central scenario for the economy is that this condition will not be met before 2024. To meet this condition, the labor market will need to be tight enough to generate wage growth significantly above what it is now.
Reserve Bank of Australia published this content on 05 October 2021 and is solely responsible for the information it contains. Distributed by Public, unedited and unmodified, on 05 October 2021 03:42:41 UTC.