Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Australia central bank will trim bond buying even as Delta variant slams economy

Published 03/08/2021, 06:31
Updated 03/08/2021, 06:35
© Reuters. FILE PHOTO: Pedestrians walk past the main entrance to the Reserve Bank of Australia (RBA) head office in central Sydney, Australia, October 3, 2016. Picture taken October 3, 2016. REUTERS/David Gray/File Photo

© Reuters. FILE PHOTO: Pedestrians walk past the main entrance to the Reserve Bank of Australia (RBA) head office in central Sydney, Australia, October 3, 2016. Picture taken October 3, 2016. REUTERS/David Gray/File Photo

SYDNEY (Reuters) - Australia's central bank surprised markets on Tuesday by standing its ground on a decision to taper its bond buying programme from September even as a fast-spreading Delta variant wrecks havoc in the economy.

The Reserve Bank of Australia (RBA) kept its cash rate at 0.1% for its eighth straight meeting, in a widely expected move. It reiterated interest rates will not be raised until inflation was sustainably within its 2-3% target band, a goal unlikely to be met before 2024.

The RBA also affirmed its decision made in July to trim its purchases of government bonds to A$4 billion a week from September from the current weekly pace of A$5 billion, surprising markets betting on higher or steady purchases.

The move sent the Aussie dollar to a day's high of $0.7408.

In a short post-meeting statement RBA Governor Philip Lowe struck an upbeat note about Australia's economy, which recovered from a pandemic-induced recession of 2020 much stronger than expected.

"The recent outbreaks of the virus are, however, interrupting the recovery and GDP is expected to decline in the September quarter," Lowe said.

The highly transmissible Delta variant of the coronavirus has taken hold in Sydney with close to 4,000 infections since mid-June despite weeks of lockdown.

"The experience to date has been that once virus outbreaks are contained, the economy bounces back quickly," Lowe said.

He noted the economy was benefiting from "significant" policy support, adding the ongoing COVID-19 immunisation plan will also assist with the recovery.

Queensland state is also battling a smaller outbreak with Brisbane, Gold Coast and Sunshine Coast under stringent stay-home orders. Australia's second-most populous city of Melbourne came out of a two-week lockdown last month after controlling its Delta outbreak.

© Reuters. FILE PHOTO: Pedestrians walk past the main entrance to the Reserve Bank of Australia (RBA) head office in central Sydney, Australia, October 3, 2016. Picture taken October 3, 2016. REUTERS/David Gray/File Photo

Lowe said the economic outlook for the coming months was "uncertain", though the RBA expects 2.5% GDP growth in 2023, on top of a "little over 4%" in 2022.

The RBA still does not expect a remarkable pick-up in wages growth and inflation, which means the cash rate will remain at record lows for a long time to come.

Latest comments

a vaccination rate that would shame a tin pot African banana republic
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.