Australia’s to taper bond buying, leaves rate at record lows

(Reuters) – Australia’s central bank left its cash rate at a record low of 0.1% on Tuesday and said it was likely to remain there until 2024, though it did pare its bond buying campaign.

The Reserve Bank of Australia (RBA) retained the April-2024 bond for its three-year yield target of 0.1%, as widely expected, and announced a third round of its quantitative easing programme albeit a size smaller than the previous two rounds.

The RBA would continue purchasing government bonds past the present September deadline at a weekly pace of A$4 billion, rather than the current A$5 billion.

Analysts in a Reuters poll had unanimously predicted the RBA would limit its yield target to the April 2024, instead of spreading it out to November. On QE, a majority had expected a “flexible” setting.

In a short post-meeting statement Governor Philip Lowe said Tuesday’s measures would “provide the continuing monetary support that the economy needs as it transitions from the recovery phase to the expansion phase.”

Lowe will address a media conference at 0600 GMT.

The RBA cut interest rates three times last year to current record lows and launched a massive bond buying programme to push borrowing costs down and spark spending.

The monetary stimulus together with the government’s fiscal support have boosted Australia’s A$2 trillion economy, which is now larger than its pre-pandemic level. The jobs market is tightening rapidly, the property market is heating up and consumer spending is buoyant.

Last week, Sydney, Australia’s largest city, entered its strictest coronavirus lockdown since the pandemic began while partial curbs were imposed across other major cities.

These restrictions threaten to take some shine off Australia’s stellar economic performance amid a sluggish and dysfunctional vaccination rollout with just about 9% of the adult population inoculated so far, among the lowest in the developed world.

The RBA acknowledged the strength in recent data but highlighted recent virus outbreaks as a key near-term uncertainty. Lowe reiterated the RBA’s central scenario for the economy is that it won’t meet its inflation and employment objectives before 2024.

The RBA’s dovish tilt contrasts with its New Zealand counterpart, which in May became one of the first advanced economies to signal a move away from the stimulatory settings adopted during the COVID-19 pandemic.

Economists at BNZ, an arm of National Australia Bank, expect the Reserve Bank of New Zealand (RBNZ) to start hiking interest rates from later this year led by a solid economic recovery from the pandemic.