At its meeting today, the Board decided further package of measures to support job creation and economic recovery of a pandemic Australia. With Australia facing a period of high unemployment, the Reserve Bank is committed to doing what it can to support job creation. The spirit, the recent economic data has been slightly better than expected and the near-term outlook is better than it was three months ago. Even so, the recovery is still expected to be bumpy and drawn out, and the outlook remains subject to the successful containment of the virus.
The elements of the package at this time are as follows:
- a decrease in the interest rate target of 0.1 percent
- reduction targets for the results of the 3-year Australian government bonds to around 0.1 percent
- lower interest rates under the new image-Term Funding Facility 0.1 percent Settlement of Securities interest rate cuts to balance to zero
- purchase $ 100 billion of government bonds maturity of approximately 5 to 10 years over the next six months.
- Under the program to buy longer-dated bonds, the Bank will buy bonds issued by the Australian Government and the states and territories, with an expected 80/20 split. The bonds will be purchased on the secondary market through regular auctions, with the first auction to be held this Thursday to the Australian government securities. Further details of the auction are provided in the accompanying market notice.
Remnants of the Bank is ready to purchase bonds in any amount needed to achieve the target yield of 3 years. Each of bonds purchased to support this target would be in addition to the bond-purchase program of $ 100 billion.
At its meeting today, the Board also considered an updated set of economic forecasts. The global economy has recovered from the initial virus outbreak, with the recovery of the most advanced in China. Even so, the result in most countries remain far at a pre-pandemic and pandemic virus recently pose a downside risk to the outlook, especially in Europe.
In Australia, the ongoing economic recovery and a positive GDP growth is now expected in the September quarter, despite the restrictions in Victoria. It will, however, take some time to reach pre-pandemic levels of output. In the central scenario, the GDP growth is estimated at about 6 percent for the year to June 2021 and 4 percent in 2022. The unemployment rate is expected to remain high, but to peak at just under 8 percent, rather than the 10 percent expected previously. At the end of 2022, the unemployment rate is estimated at about 6 percent.
This period of high unemployment and excess capacity is expected to result in increases in wages and prices more calm coming years. In underlying terms, inflation is estimated to be 1 percent in 2021 and 1 ½ percent in 2022. In the latest quarter, ending the year CPI inflation was 0.7 per cent and, in underlying terms, inflation 1¼ percent.
Board Views tackle the high unemployment rate as an important national priority. the current policy package, together with earlier steps by the RBA, will assist in this effort. RBA response is complete the significant steps taken by the Australian Government, including in the recent budget, to support jobs and economic growth.
The combination of bond purchases RBA and lower interest rates in the yield curve would help the recovery by: lowering the cost of financing for borrowers; contributes to the exchange rate lower than the reverse; and supporting asset prices and balance sheets. At the same time, the RBA Term Funding Facility contributes to low funding costs and support the supply of credit to the economy. For now, the official institution taking deposits of $ 83 billion had been drawn on this facility and have access to a further $ 104 billion.
Given the prospects for both work and inflation, monetary and fiscal support will be needed for some time. For its part, the Board will not increase interest rates until sustainable inflation in 2 to 3 per percent target range. For this to happen, wage growth will have to be higher material than today. This will require significant benefits in the work and return to the strict labor market. Given the prospect, the board does not expect to increase the cash rate for at least three years. The Board will maintain the size of the bond purchase program to be studied, especially considering the prospect develops for work and inflation. The board is ready to do more if needed.