Australia's central bank sticks to tapering, but extends timeline

[SYDNEY] Australia's central bank on Tuesday confirmed plans to trim its massive bond buying programme, counting on the economy to rebound rapidly once a rush of vaccinations helps ease the grip of harsh coronavirus lockdowns.

The Reserve Bank of Australia (RBA) concluded its September Board meeting by keeping interest rates at a record low of 0.1 per cent as widely expected.

It surprised some by cutting its bond buying by A$1 billion (S$996.3 million) a week to A$4 billion, though it also extended the programme to at least mid-February which was seen as a dovish concession.

There had been speculation it would delay the tapering altogether given stay-at home orders in Sydney, Melbourne and Canberra were set to cause a vicious economic contraction this quarter.

RBA governor Philip Lowe acknowledged the damage being done, but remained optimistic on the outlook.

"The Delta outbreak is expected to delay, but not derail, the recovery," he said. "As vaccination rates increase further and restrictions are eased, the economy should bounce back."

After a slow start, the pace of vaccinations has accelerated markedly and Australia has now fully vaccinated 38 per cent of the 16+ population, while 63 per cent have had at least one dose.

The federal government has a plan to ease restrictions once 70 per cent of the adult population are vaccinated and to abandon mass lockdowns altogether at 80 per cent, though not all the states are on board with this vision. Currently it is on track for 70 per cent fully vaccinated by October and 80 per cent by November.

Mr Lowe noted there was uncertainty about the timing and pace of the expected recovery and cautioned it was likely to be slower than the one earlier this year.

As a result, the Board would continue to review the bond purchase program in light of economic conditions and the health situation, he added.

"It is what we would call a dovish taper in the sense that they've committed to staying at this A$4 billion pace for pretty much at least six months," said Su-Lin Ong, head of Australian fixed income strategy at RBC Capital Markets.

"The fact that they are happy to taper, but are going to keep it going for longer tells you that they're still injecting quite a lot of stimulus into the system."

On a longer-term view, the RBA again stated an actual hike in rates was unlikely until 2024 when it hopes wage growth and inflation will have finally picked up to desired levels.

REUTERS