Pedal to the metal, but RBA trims massive stimulus spend to $4 billion a week
The Reserve Bank board has decided to tap the brakes on its massive stimulus program, but will continue to pump as much as $4 billion a week into the economy through its bond purchasing.
At its meeting today, the RBA board kept interest rates on hold and said it believed inflation would not reach its target range of between 2 and 3 per cent on a sustainable basis before 2024.
It said its massive bond purchasing program that had pumped billions into the economy would continue āgiven that we remain some distance from the inflation and employment objectivesā.
āHowever, the board is responding to the stronger-than-expected economic recovery and the improved outlook by adjusting the weekly amount purchased. It will conduct a further review in November, allowing the board to respond to the state of the economy at that time,ā it said.
āThese purchases will be at the rate of $4 billion a week until at least mid-November.ā
Thatās a reduction of about $1 billion a week from the current level.
The decision was met with a sell-off on the ASX.
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The RBA said $188 billion has been drawn down under the bond program āwhich has contributed to the Australian banking system being highly liquidā.
āGiven that the facility is providing low-cost fixed-rate funding for three years, it will continue to support low borrowing costs until mid-2024,ā the board said.
AMP Capital economist Shane Oliver said there were no real surprises from the RBA.
He said the decision would slow quantitative easing (bond-buying) āa bitā but the RBA remained dovish and was not seeing the conditions for a rate hike on its central scenario before 2024.
The RBA has, however, dropped the reference to ā2024 at the earliestā for an interest rate rise.
āWe still see the first hike as being in 2023, possibly late 2022,ā Oliver said.
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The RBA indicated that it believed Australia was learning to deal with the pandemic although it felt outbreaks and lockdowns presented ānear-term uncertaintyā.
āBut the experience to date has been that once outbreaks are contained and restrictions are eased, the economy bounces back quickly,ā it said.
It said housing markets had continued to strengthen, with prices rising in all major markets, and lending had increased.
āGiven the environment of rising housing prices and low interest rates, the bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained,ā it said.
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