Tapering and Interest Rate Outlook: Timelines Ahead
Team Veye | 13-May-2023
Australian economy had started picking up with considerable momentum just before the Delta outbreak. In the June quarter, GDP was up by 0.7 per cent and by approximately 10 per cent over the year. With a strengthening labour market and unemployment rate falling below 5 per cent, business investment was gradually picking up.
When The Reserve Bank of Australia met last week to decide the nation's official cash rate, it chose to keep it on hold at record-low levels of 0.10 per cent as the country continued to battle the COVID-19 pandemic.
The central bank had long advised that it will not increase the cash rate until inflation rises to a sustainable target of two to three per cent. Presently inflation was around 1.75 per cent.
In his monetary statement, RBA Governor Philip Lowe noted the impact extended COVID-19 lockdowns were having on large parts of the country. He expected GDP to decline materially in the September quarter and the unemployment rate moving higher over the coming months.
It is expected that setback to the economic expansion is only temporary and the Delta outbreak could delay, but not derail, the recovery. With increased vaccination rates and the easing of restrictions, the economy should bounce back.
However, The Board's decision to extend the bond purchases at $4 billion a week until at least February 2022 could be a pointer to the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak.
The US Federal Reserve’s FOMC held its meeting earlier this week to take decisions on its monetary policy. US Federal Reserve Chair Jerome Powell’s statement that the US central bank could begin scaling back asset purchases in November and complete the process by mid-2022, was expected by market participants. It is widely believed that global markets can weather a gradual tightening in Federal Reserve monetary policy.
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