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Australia Monetary Policy February 2021

Australia: RBA expands quantitative easing at first meeting of 2021

At its monetary policy meeting on 2 February, the Reserve Bank of Australia (RBA) surprised market analysts by deciding to purchase an additional AUD 100 billion of government bonds starting from April, in order to strengthen the economic recovery. At the same time, it kept the cash rate unchanged at the all-time low of 0.10%, while it also left the target for three-year government bond yields at around 0.10%.

Recent data suggests that the recovery is underway, and the global outlook has improved thanks to the deployment of vaccines, although possible further outbreaks of the virus continue to pose downside risks. All said, the Bank expects the economy to expand 3.5% in both 2021 and 2022, although it will still operate with substantial spare capacity, which led the RBA to further loosen its monetary policy stance.

The Bank maintained a dovish tone in its communiqué, stating that it expects to maintain the cash rate at its current all-time low until actual inflation is within its 2.0–3.0% target range and the labor market returns to full employment, which it does not see until 2024.

The next monetary policy meeting is scheduled for 2 March.

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