Reserve Bank of Australia (RBA) Governor, Dr Philip Lowe, said the economy is benefiting from significant additional policy support, and that it is still expected to grow strongly next year.
"The economic outlook for the coming months is uncertain and depends upon the evolution of the health situation and the containment measures," Dr Lowe said.
Dr Lowe has maintained the Bank's 2024 horizon regarding when the cash rate will rise, stating that the Board will not increase the cash rate until actual inflation is "sustainably within the 2 to 3% target range".
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Economists were unsurprised by the RBA's decision to maintain the current cash rate.
Chief Executive Officer, Broker at REA Group, Susan Mitchell, said the economic data prior to the lockdowns was very strong and that the economy has bounced back from lockdowns quickly in the past.
"The Delta-strain induced lockdowns have reinforced the need for agile fiscal and monetary responses," Ms Mitchell said.
Indeed Asia-Pacific economist Callam Pickering said the economic recovery had "stopped in its tracks" due to the latest lockdowns across many states and cities.
"It is a timely reminder that normalising monetary policy will be impossible until the threat of COVID-19 is neutralised," Mr Pickering said.
"A key question is whether the economic impact of Sydney’s lockdown proves temporary or more persistent. If the former, then we’d expect the recovery to recommence quickly as Sydney opens up.
"If the latter then there is a risk that Sydney’s recovery is sluggish with spillover effects on other regions."
CoreLogic research director Tim Lawless also echoed these sentiments, though did say economic sluggishness was a "temporary phenomenon".
"The experience to date has been that economic conditions bounce back quickly once the outbreaks are contained and restrictions are lifted," Mr Lawless said.
"Clearly the RBA believes the Australian economy had enough momentum heading into the most recent outbreaks that growth conditions will return once lockdowns are lifted."
Unemployment rate to improve
The unemployment rate is currently 4.9%, and the RBA Board has previously forecasted the unemployment rate to remain at 5% by year's end, but many economists predicted it will drop to 4.5%.
Many of these forecasts occurred before the latest spate of lockdowns across Sydney, Melbourne, and Brisbane.
However, the RBA has now updated its stance on the unemployment rate, expecting it to rise and then drop in the coming years.
"In the central scenario, the unemployment rate continues to trend lower next year, to be around 4.25% at the end of 2022 and 4% at the end of 2023," Dr Lowe said.
RBA maintains tapering of bond purchases amid economic uncertainty
The RBA also announced that it will continue to purchase government bonds (also called quantitative easing) at the rate of $5 billion a week until early September, and then $4 billion a week until at least mid November.
This is down by a billion dollars a week, initially announced in July's Board meeting.
"The program will continue to be reviewed in light of economic conditions and the health situation, and their implications for the expected progress towards full employment and the inflation target," Dr Lowe said.
The #RBA disappoint expectations that it would walk back its decision to taper its QE program, the Bank will retain a "flexible approach" but notes the the existing monetary and fiscal stimulus that is already in place #ausbiz pic.twitter.com/23rkLvaA2T
— Alex Joiner (@IFM_Economist) August 3, 2021
Image by Danielle Cerullo on Unsplash
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