Against Expectations, RBA to Trim Bond Purchasing Program

Ibeth Rivero

The Reserve Bank of Australia recently decided to leave cash rates unchanged at 0.1%, in line with expectations.

The bank claimed that once the spread of the COVID-19 virus is contained, the economy will bounce back quickly, so despite the current situation, the Australian economy is expected to return to growth next year. The bank also highlighted that the economic outlook is uncertain and is tied to the evolution of the pandemic.

Moreover, the bank also stated that is not intending to raise the cash rates before its inflation target, which currently stands between 2% - 3%, is met, which is not expected to happen before 2024.

“The experience to date has been that once virus outbreaks are contained, the economy bounces back quickly. Prior to the current virus outbreaks, the Australian economy had considerable momentum and it is still expected to grow strongly again next year,” commented RBA Governor Phillip Lowe, making a reference to the fact that the GDP is expected to decline in the third quarter. “The economic outlook for the coming months is uncertain and depends upon the evolution of the health situation and the containment measures.”

In 2022, the GDP is expected to be a "little over 4 percent", while in 2023 it will slow down to 2.5%.

Most notably, the bank is beginning to taper its quantitative easing program even as the Delta variant of the COVID-19 virus is spreading quickly and the government may impose more restrictions to contain it. The decision, which implies cutting its government bonds purchases to the US $4 billion, was made in the bank’s July meeting and was expected to be either rescinded or postponed.

The COVID-19 virus continues spreading across the continent. Recently, 119 new cases were confirmed, which has caused a lot of concern even though authorities insist that most of them are linked to existing cases. Since the beginning of the pandemic, 34,836 COVID-19 cases have been reported in the country, including 925.

So far, 12.3 million vaccine dosages have been distributed among the local population, while 3.89 million individuals are now fully vaccinated, which is about 15.4% of the total population. The government aims to vaccinate around 6 million people by the end of the month, according to Australia Premier Gladys Berejiklian.

Since the beginning of the week, the Australian dollar has gained 0.65% against the US dollar, breaking a five-week losing streak and closing yesterday's session at the 0.7360 level.

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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