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Australia’s central bank says omicron won’t derail economic recovery

SYDNEY – The Reserve Bank of Australia leaves the official cash rate steady at 0.10% at its monthly policy meeting on Tuesday, suggesting it will be some time before the required conditions for a hike will be launched and address concerns about the omicron variation of the COVID-19 virus.

“The emergence of the omicron strain is a new source of uncertainty, but it is not expected to derail the recovery,” RBA Governor Philip Lowe said in a statement. said. “The economy is expected to return to a pre-plains path in the first half of 2022.”

But even if the economy recovers in 2022, the central bank’s first rate hike since 2010 seems unlikely.

“The board will not raise the cash rate until real inflation stabilizes within the 2 to 3 percent target range,” Lowe said. “This will require the labor market to tighten enough to produce a materially higher wage increase than currently… This may take some time and the board is ready to be patient.”

Despite the RBA’s cautious guidance, financial markets are pricing in rate hikes in 2022 and 2023, betting that global inflationary pressures will eventually weigh on the domestic economy.

Australia’s resource-rich economy shrank 1.9% in the third quarter, as more than half of the country’s population was forced back into lockdown due to the rapid spread of the delta variant.

However, the fourth-quarter recovery is now coming amid data showing strong job demand and strong retail sales as consumers return to shopping centers supported by a mountains of household savings accumulated during a lockdown lasting more than three months.

The next meeting of the RBA board will be in February, when the organization is expected to ease its weekly purchases of government bonds. Some economists expect it to abandon quantitative easing entirely as the economy recovers rapidly and stubborn inflationary pressures emerge.

“At its February meeting, the board will review the bond-buying program,” Lowe said.

By mid-February, the RBA will hold a total of A$350 billion in government bonds, with these holdings going to significantly support the economy, Lowe said.

In re-evaluating its QE program, the RBA will consider the actions of other central banks; how the Australian bond market is doing; and most importantly, actual and projected progress towards the full employment and inflation targets is in line with the target.

https://www.marketwatch.com/story/rba-says-omicron-won-t-derail-economic-recovery-271638849667?rss=1&siteid=rss Australia’s central bank says omicron won’t derail economic recovery

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