The Reserve Bank of Australia yesterday announced that it would extend its quantitative easing program by A$100 billion (US$76.2 billion) and does not expect to increase interest rates until 2024, following in the footsteps of global peers in moving to stamp out premature tapering speculation.
Reserve Bank of Australia Governor Philip Lowe left the key rate and three-year yield target at 0.10 percent, the central bank said in a statement.
In addition to the quantitative easing program — now extended beyond the middle of April — the central bank also operates a bank lending facility.
“The board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 percent target range,” Lowe said.
“For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labor market. The board does not expect these conditions to be met until 2024 at the earliest,” he said.
Lowe’s quantitative easing announcement reflects Australia’s small stature in the global monetary marketplace, requiring it to remain in the slipstream of major central banks.
If the central bank were to step outside that line, it would risk sending the currency soaring, damaging exports and jobs.
Australia is in a V-shaped recovery after a slump amid the COVID-19 pandemic, boosting confidence, and fueling spending and hiring.
House prices have recovered and are set to rise further as buyers tap record-low borrowing costs.
Yet, the economy was struggling to generate inflation even before the pandemic and the rise in unemployment since then only makes that harder.
A key aim of the quantitative easing program is to restrain the currency, which has been fueled by Australia’s relatively stable pandemic situation and high commodity prices, as well as massive offshore stimulus programs.
The Australian dollar has surged 33 percent since its low of US$0.55 in March last year.
The additional purchases would be at the current rate of A$5 billion a week, Lowe said.
The central bank’s updated central scenario is for Australia’s economy to grow by 3.5 percent this year and next year.
GDP is expected to return to its end-2019 level by the middle of this year, Lowe said.
There are expectations that the unemployment rate would be about 6 percent at the end of this year and 5.5 percent at the end of next year.
The unemployment rate at the end of last year was 6.6 percent, down from a pandemic peak of 7.5 percent.
An “important near-term issue” is how households and firms adjust to the tapering of some of the COVID-19 support measures and “to what extent they will use their stronger balance sheets to support spending,” Lowe said.
The government next month is due to wind up its wage subsidy program, which might prompt job cuts and bankruptcies.
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