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Australia's CB says 'Premature' to End Bond Buying Programme

Australia’s central bank on Tuesday expressed its desire to extend its bond buying program next month and lay out various options for the plan aimed at meeting its goals of boosting jobs and inflation.

Minutes of the Reserve Bank of Australia’s (RBA) June policy meeting called for members to reduce their massive quantitative easing campaign and even call for the current A$100 billion ($77 billion) round to end in September Discussed closure.

This is the first time the Reserve Bank of Australia (RBA) has determined how it can modify its bond buying campaign. The final decision is to be taken at the meeting to be held on July 6. Whatever decision the RBA makes about the bond purchase program, analysts expect it to keep the policy cash rate at a record low 0.1% for a long time to come.

“Given that the bond purchase program was one of the factors easing the adjustment conditions required for economic recovery, members thought it was too early to consider ending the program,” the minutes of its June policy meeting showed. is.

Other options discussed include a third round of $100 billion bond purchases for six months, reducing the amount purchased and spreading the purchases over a longer period.

Moving to an approach where the pace of procurement is reviewed more frequently based on the flow of data and economic outlook was also discussed.

The RBA gave no indication of preference. Economists are divided on the approach the central bank might take, with some predicting another $100 billion round and others predicting a flexible schedule.

“The main considerations for the decision in July will be progress towards the Board’s targets for employment and inflation and the potential impact of the various options on overall financial conditions,” the minutes showed.

The RBA has said it will also consider the fate of its three-year yield target on July 6, which currently stands at 0.1%. Analysts strongly believe that the RBA will not extend the target beyond the April 2024 bond. The central bank did not give any indication about whether it agreed with the market.

Investors will see communications from the RBA in the weeks beginning with Governor Philip Lowe’s speech on Thursday. Assistant Governor Lucy Ellis speaks at a conference on June 23, followed by a panel participation by Lowe on June 30.

“If the board wants to reverse market pricing and speculation by July 6… there will be ample opportunity to do so in the coming weeks,” said RBC economist Su-Lin Ong.

The Australian Dollar was a touch softer at $0.7711 as the minutes were seen dovish.

slow increment

Explaining the need for easing monetary policy, the RBA has said that wage growth needs to be “permanently above 3%” to help achieve the inflation target of 2% to 3%.

Core inflation was currently at an all-time low of 1.2%. Wage growth is running at just 1.5%, compared to 2% in Europe and about 3% for the United States.

The RBA expects wage pressures to subside by 2024 at the earliest, despite strong growth in employment. Key indicators of labor demand, such as job vacancies, point to further solid growth in employment in the coming months.

Nevertheless, companies facing labor shortages were offering non-wage incentives such as lump-sum bonuses and more flexible work arrangements to attract and retain employees, the RBA cited its liaison program with businesses. Said happened.

Some firms were opting for ration production due to labor shortage instead of paying higher wages to attract new workers.

NAB economist Taylor Nugent, referring to the central banks of New Zealand and Canada, “highlights the RBA’s ongoing sluggish views around inflation and wages, which suggest that the RBA may push higher rates to the RBNZ and BOC in 2022.” There’s no rush to mark.”

($1 = 1.2968 Australian Dollar)


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