RBA announced to extend the asset purchase program by an additional AUD100B as the current program ends in mid- April. Meanwhile, it has turned more upbeat about the global and domestic economic outlook, and upgraded GDP and employment forecasts.
RBA turns more upbeat over the global and domestic economic outlook. Globally, it indicated the economy “has improved over recent months due to the development of vaccines. While the path ahead is likely to remain bumpy and uneven, there are better prospects for a sustained recovery than there were a few months ago”. Domestically, it noted that the recovery “is well under way and has been stronger than was earlier expected”. It acknowledged the “welcome decline in the unemployment rate to 6.6%” and the “success on the health front and the very significant fiscal and monetary support”.
On the economic projections, RBA now forecasts the economy to return to pre-pandemic levels in mid-2021, earlier than prvious projection of end-2021. The unemployment rate is expected to fall to 6% by end-2021 (previous: 6.5%) and 5.5% by end-2022 (previous: 6%). Inflation is expected to stay low, at +1.25% and +1.5% in 2021 and 1.5%.
Concerning the monetary policy, the RBA kept the cash rate, 3-year yield target and the rate on the TFF program unchanged at 0.1%. It reaffirmed that it will not “increase the cash rate until actual inflation is sustainably within the 2-3% target range”. In order to reach the inflation target, RBA also suggested that “wages growth will have to be materially higher than it is currently” and that there should be “significant gains in employment and a return to a tight labour market”. Note, however, that the reference that “the Board is prepared to do more if necessary” is omitted this time, giving somehow a hawkish sense to the statement. Another tweak in the statement is the explicit stance that the members do not expect these conditions to be met until 2024 at the earliest”.
In line with our expectation, the central bank announced to extend the asset purchase program by an additional AUD100B until September, after the the current program ends in mid-April. RBA has spent AUD52B so far buying state and federal bonds under the current program.