RBA holds the Cash Rate at 0.10%, as expected. Ends QE – ForexLive

Forecasts for the RBA include an end to bond-buying in February, rate hike 2022

  • Prior was 0.10%
  • Ends QE with final purchases to take place on Feb 10
  • Prior pace of QE was A$4 billion/week
  • While inflation has picked up, it is too early to conclude that it is
    sustainably within the target band
  • Repeats that it “will not increase the cash rate until actual inflation is sustainably within the 2 to
    3 per cent target range”
  • There are uncertainties about how persistent the pick-up in inflation
    will be as supply-side problems are resolved
  • Wages growth also remains modest and it is likely to be
    some time yet before aggregate wages growth is at a rate consistent with inflation being sustainably at
    target.
  • RBA says is “prepared to be patient as it monitors how the various factors affecting inflation in
    Australia evolve”
  • RBA balance sheet is around $640 billion
  • RBA will consider the issue of balance sheet reinvestment in May

In the December statement, the RBA tipped that it could end QE in ‘mid-February’. The program was widely expected to be ended today.

Previously, the RBA had said only a gradual pickup in underlying inflation was expected. The very same month, core prices rose 1.0% m/m, data revealed last week. Since then, market pricing for hikes has picked up and there was a 14% chance of a hike priced in next month, rising sharply from there.

This statement should be read as a push-back against those expectations and so it’s no surprise that AUD/USD has taken a quick trip to 0.7040 from 0.7070 beforehand.

More:

  • faster-than-expected progress has been made towards the
    RBA’s goals and further progress is likely
  • central forecast is for GDP growth of around 4¼ per cent over 2022 and
    2 per cent over 2023
  • high numbers of job vacancies suggest further gains in employment over the months ahead
  • central forecast is for the unemployment rate to fall to below 4 per cent later
    in the year and to be around 3¾ per cent at the end of 2023.
  • Wages growth has picked up but, at the aggregate level, has only returned to the relatively low rates
    prevailing before the pandemic
  • Gradual pickup in wages is expected
  • The central forecast is for underlying inflation
    to increase further in coming quarters to around 3¼ per cent, before declining to around
    2¾ per cent over 2023 as the supply-side problems are resolved and consumption patterns
    normalise

The RBA’s previous forecast on inflation was not to hit underlying inflation of 2.5% until 2023. Now it’s saying there will be a short-term rise that will sort itself out and then the pace will fall to 2.75% over 2023.

Leave a comment

Your email address will not be published.