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In Foreign Affairs

Australian CB left the key interest rate without change, keeping printing press hot

6th July 2021 Matthew Patridge

Australian CB left the key interest rate without change, keeping printing press hot Pin It

The Central bank of Australia has once again left interest rate policy unchanged and decided to continue the buy-in program, but to limit bond purchases per week. This was demonstrated on Tuesday by the Reserve Bank of Australia’s latest interest rate decision.

This means that the bank will continue the bond purchase programme after the completion of the ongoing programme in early September, after which Australian $ 4 billion of bonds will be withdrawn from the market every week until at least mid-November. That was $ 5 billion. In mid-November, the purchasing policy will be reviewed.

With the maintenance of the 10 basis point yield target for the government bond of April 2024, the RBA plans to keep short-term interest rates low and hence the borrowing costs for the state.

According to the RBA, Australia’s economy has recovered more strongly than expected and this trend is likely to continue. Investment prospects have improved, while households and businesses have their balance sheets well in order. National income is supported by high commodity prices.

In the short term, however, the RBA considers that there is uncertainty about the recent corona outbreaks and various related restrictive measures. Nevertheless, these uncertainties seem limited, while the economy is buoyant, according to the policy organ.

The labour market recovered faster than expected with an unemployment rate of 5.1 per cent in May. In order to achieve full employment, the bank will maintain interest rate policy until the target of 2-3% inflation has been reached.

Despite this trend, inflation and wages continue to develop moderately. Underlying inflation is expected to be 1.5 per cent for 2021 and 2.0 per cent for mid-2023. For the three months to June of this year, inflation is expected to be around 3.5% based on a temporary effect of reversing price cuts taken a year ago to deal with the pandemic.

Furthermore, under the Term Funding Facility completed on 30 June, 188 billion Australian dollars have been raised to date.

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