The RBA has kept interest rates on hold, but looks ready to expand its stimulus effort as Sydney’s lockdown bites




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  • The Reserve Bank of Australia (RBA) has kept the official interest rate at 0.10% as expected on Tuesday but looks ready to expand its bond buying program once more.
  • As the Sydney lockdown threatens a national recession, the RBA Board has recommitted to purchase at least $4 billion per week of bonds and says it will continue to be “flexible”.
  • It represents yet another escalation in support, as state and federal governments spend $1 billion per week to keep businesses and workers afloat.
  • Visit Business Insider Australia’s homepage for more stories.

Last month the central bank was getting ready to wind down stimulus, but now the Reserve Bank (RBA) is bracing to step back up to the plate as Sydney’s lockdown threatens Australia’s economic recovery.

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Meeting on Tuesday, the RBA Board decided to keep the official interest rate locked at 0.10% but reaffirmed it wasn’t going to remove support from the economy before time.

“The economic recovery in Australia has been stronger than was earlier expected. The recent outbreaks of the virus are, however, interrupting the recovery and GDP is expected to decline in the September quarter,” Governor Philip Lowe said in his monthly statement.

“The economic outlook for the coming months is uncertain and depends upon the evolution of the health situation and the containment measures.”

Last month, Lowe was ready to pump the breaks on stimulus. The central bank said it was committed after September to purchasing “at least” $4 billion in bonds per week, down from the mandated schedule of $5 billion begun last year.

It reflected the fact the Australian economy was growing strongly again, as the RBA and the federal government stepped out of the economy, winding up support measures like JobKeeper and pushing businesses and workers to stand on their own two feet again.

How big a difference a month makes.

Outbreaks of the COVID-19 virus forced Sydney, Australia’s largest city, into lockdown, along with the entire states of Victoria and South Australia. With Sydney still under stay-at-home orders until at least the end of August, economists now warn the entire country risks another recession.

Now state and federal governments are spending $1 billion a week to keep businesses and workers afloat. These payments have relieved pressure on the RBA to do more, with Lowe referring to them as “welcome support to the economy at a time of significant short-term disruption.”

While he did not up that commitment on Tuesday, Lowe did recommit to maintaining a “flexible approach”, guaranteeing $4 billion worth of purchases until “at least mid-November”.

“The program will continue to be reviewed in light of economic conditions and the health situation,” he said.

It leaves the door open for the central bank to do more should it see the need, although it remains confident the recovery has not yet been compromised.

“Some increase in the unemployment rate is expected in the near term due to the current lockdowns, but most of the adjustment in the labour market is likely to take place through a reduction in hours worked and in participation,” Lowe said, forecasting unemployment would fall to 4.25% by the end of next year.

“Prior to the current virus outbreaks, the Australian economy had considerable momentum and it is still expected to grow strongly again next year. The economy is benefiting from significant additional policy support and the vaccination program will also assist with the recovery.”

While some doubt has crept in, the RBA looks prepared to stay the course for at least another month yet.

The post The RBA has kept interest rates on hold, but looks ready to expand its stimulus effort as Sydney’s lockdown bites appeared first on Business Insider Australia.

Source: Thanks msn.com