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Australia Monetary Policy June 2021

Australia: RBA holds its ground in June

At its monetary policy meeting on 1 June, the Reserve Bank of Australia (RBA) decided to keep the cash rate unchanged at the all-time low of 0.10%. It also left the target for three-year government bond yields at around 0.10%, and reiterated it will consider whether to retain the current yield target and/or to undertake further bond purchases at its July meeting.

The decision was motivated by data showing that although the recovery in both GDP and the labor market is well underway and stronger than previously expected, price pressures remain moderate. Meanwhile, the global recovery is progressing amid the rollout of vaccines, and although pandemic-related uncertainty persists, it should wane as vaccination campaigns continue to gain speed. All told, the Bank expects the economy to expand 4.8% and 3.5% in 2021 and 2022, respectively. On the price front, the RBA projects a temporary spike in prices in the second quarter due to a low base effect.

The Bank kept its dovish tone in its communiqué, reiterating that it expects to maintain the cash rate at its current all-time low until the labor market returns to full employment, wage growth accelerates substantially and actual inflation is comfortably within its 2.0–3.0% target range, which it does not see until 2024. Additionally, it added that it will monitor the evolution of housing prices—currently on the rise—and borrowing costs in order to maintain favorable lending conditions.

The next monetary policy meeting is scheduled for 6 July.

Commenting on the possible outcome of the Bank’s next meeting, Robert Carnell, head of research for the Asia-Pacific region at ING, stated:

“If the RBA does decide to continue to run its asset purchase scheme beyond September at its July meeting, then there are few constraints to them doing so. […] Typically, central banks pursuing these sorts of policies prefer not to hold more than 30% of the outstanding stock of government debt, though there are examples where the ownership goes much higher than this.”

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