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Australia’s central bank kept its monetary settings unchanged, betting there’s enough stimulus to foster an economic recovery ahead of a gradual reopening of Sydney and Melbourne as vaccination rates climb.
Reserve Bank Governor Philip Lowe kept the cash rate at 0.1% -- as expected -- at Tuesday’s meeting. Lowe cut weekly bond purchases to A$4 billion ($2.9 billion) last month, while pushing out their next review to mid-February to help cushion the economic impact of lockdowns along the nation’s east coast.
“This setback to the economic expansion in Australia is expected to be only temporary,” Lowe said in a statement. “As vaccination rates increase further and restrictions are eased, the economy is expected to bounce back.”
The Australian dollar edged down after the release, trading at 72.67 U.S. cents at 2:36 p.m. in Sydney.
Australia’s biggest cities have been under extended stay-at-home orders to try to contain the delta variant of coronavirus. Sydney will begin easing restrictions this month as the New South Wales state vaccination rate closes in on 70%; they will be eased further once it hits 80%.
Financial regulators are grappling with how to contain surging credit and a red-hot property market without choking off the economy’s recovery. The RBA has said consistently it doesn’t expect to raise rates until 2024 at the earliest -- leaving tighter lending rules as the only way to rein in the property market.
“The Council of Financial Regulators has been discussing the medium-term risks to macroeconomic stability of rapid credit growth at a time of historically low interest rates,” Lowe said. “In this environment, it is important that lending standards are maintained and that loan serviceability buffers are appropriate.”
The RBA is due to release its semi-annual Financial Stability Review on Friday and lending and housing are likely to feature prominently.
The rapid house-price gains in Sydney and Melbourne come despite protracted lockdowns, and as growing household debt raises financial stability issues. The RBA has ruled out tightening policy to cool asset prices -- unlike South Korea, and as New Zealand’s central bank appears set to do at tomorrow’s meeting -- focusing instead on pushing the economy to full employment.
The central bank’s quantitative easing program is designed to help keep a lid on the currency to avoid it hurting jobs and growth. It has proven successful with the Aussie dollar down 5% in the past six months even as Australia posted a record trade surplus in August, fueled by surging commodities.
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