Australia scraps bond buying, remains patient on interest rates

[SYDNEY] Australia's central bank scrapped its quantitative easing program following a jump in hiring and inflation, while saying it will remain "patient" as it monitors inflation trends.

The Reserve Bank of Australia (RBA) announced it would end its weekly A$4 billion (S$3.8 billion) in government bond purchases as central banks worldwide shift to more hawkish stances. The board kept its cash rate at a record low 0.1 per cent - as expected - at Tuesday's (Feb 1) meeting, according to a statement in Sydney.

The RBA's dovish view wrongfooted markets, sending the Australian dollar down to 70.36 US cents, while yields on three-year bonds slid 7 basis points to 1.29 per cent.

"Ceasing purchases under the bond purchase program does not imply a near-term increase in interest rates,"

Governor Philip Lowe said in the statement.

"The board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve."

Lowe's signaling avoid a U-turn on his repeated refrain that rates were unlikely to rise this year because it would take time for wages growth to gather pace. His position comes despite economists bringing forward their forecasts for rate liftoff to August in response to faster inflation readings.

Core inflation surpassed the 2.5 per cent midpoint of the RBA's target for the first time since June 2014, data last week showed, while the jobless rate fell to a 13-year low of 4.2 per cent.

Yet the economy is also in the grips of a renewed outbreak of coronavirus that is weighing on activity, at least temporarily.

The governor will have the opportunity to explain his outlook on Wednesday, when he delivers his first speech of the year at the National Press Club. Two days later, the RBA releases its full suite of forecasts in its Statement on Monetary Policy. BLOOMBERG