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Australia Monetary Policy February 2022

Australia: RBA keeps rates unchanged in February but ends bond purchase program

At its monetary policy meeting on 1 February, the Reserve Bank of Australia (RBA) decided to keep the cash rate unchanged at the all-time low of 0.10%, although it announced it will stop buying government bonds from 10 February, thus ending additional monetary stimulus.

The decision was underpinned by a resilient recovery, a strong labor market, faster wage growth and rising inflation. In Q4, headline and underlying inflation came in at 3.5% and 2.6%, respectively, while the labor market continued to perform strongly in December. The Bank expects underlying inflation to reach 3.3% in the coming quarters, before declining to around 2.8% over 2023, on easing supply constraints and shifting consumption patterns.

Despite ruling out additional monetary support, the Bank maintained a dovish tone in its communiqué, stating that it is “committed to maintaining highly supportive monetary conditions to achieve its objectives of a return to full employment”. Moreover, it reiterated that it will not raise the cash rate before inflation is sustainably within the 2.0%–3.0% target range. As such, the majority of our panelists see the cash rate remaining at 0.10% for the whole of this year.

The next monetary policy meeting is scheduled for 1 March 2022.

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