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Australian Central Bank maintains policy as bond target looms

(Bloomberg) – Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast. Australia’s central bank has maintained its policy parameters as it prepares to decide to expand its yield target and quantitative easing programs, with a Covid-19 foreclosure complicating the outlook. The Reserve Bank of Australia kept the cash rate and the three-year yield target at 0.10% in Sydney on Tuesday, as expected. It will make a decision in July on whether to extend the yield target and undertake further quantitative easing. A weeklong shutdown in the nation’s second largest city adds a layer of uncertainty to the outlook. “Despite the strong recovery in the economy and jobs, inflation and wage pressures are moderate,” Governor Philip Lowe said. “The Board of Directors is committed to maintaining very favorable monetary conditions to support a return to full employment in Australia and inflation on target.” The Australian dollar fell slightly, trading at 77.41 cents US at 2:53 pm in Sydney against just 77.62 cents. before publication. The case for Lowe to maintain the April 2024 bond as the target maturity strengthened amid strong hiring, sentiment and investment plans. This was reinforced by the fact that the government kept the fiscal tap open in the May budget as it joins the RBA in an attempt to bring down unemployment to revive wage growth and inflation. “Progress in reducing unemployment has been faster than expected,” Lowe said in his statement. . “There are reports of labor shortages in parts of the economy.” Risks Ahead Yet the RBA can be encouraged to err on the side of caution if the Melbourne outbreak worsens and to expand its two bond programs to maintain maximum support for the economy. The possibility of major virus outbreaks is a continuing source of significant uncertainty, although this is expected to diminish as more of the population is vaccinated, ”Lowe said. “The council continues to place a high priority on the return to full employment. Globally, central banks are beginning to move away from emergency monetary parameters. The Reserve Bank of New Zealand surprised markets last week with projections of its official exchange rate rising in the second half of next year. Returning to Australia, economists predicted Wednesday before the data that gross domestic product rose 1.5% in the first three months of the year from the previous quarter, and rose 0.6% per compared to the previous year. Treasury Secretary Steven Kennedy, in testimony to a parliamentary panel earlier today, said partial data showed about 56,000 workers lost their jobs in the four weeks after the subsidy ended. Government JobKeeper salary which expired on March 28. EconomyLowe Tests estimates that the unemployment rate in Australia will need to fall to almost 4% before leading to wage increases across the economy. It stood at 5.5% in April. The governor predicts that wage growth will have to increase at a rate greater than 3% – more than double the current rate – for inflation to return to the central bank’s target of 2-3% on a lasting basis. Lowe reiterated that “It’s unlikely to be before 2024 at the earliest. (Updates with other governor’s comments throughout.) More stories like this are available at bloomberg.com. Bloomberg LP

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