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RBA Not in a Hurry to Take Up Policy - Zeal Capital Market

RBA Not in a Hurry to Take Up Policy

07-12-2021 11:02

ZFX – Australia’s central bank kept interest rates at 0.1% on Tuesday and stuck with its bond-buying plans, resisting pressure to follow its US counterpart in earlier stimulus cuts.

Concluding the last policy meeting of the year, the Reserve Bank of Australia’s (RBA) Board noted the emergence of the Omicron variant, but was confident it would not derail a speedy economic recovery.

Most importantly, while inflation is rising, it is still lower than in many other developed economies and is likely to rise only gradually given the apparent sluggishness in wage growth.

“The Board is committed to maintaining very supportive monetary conditions to achieve its objectives,” said RBA Governor Philip Lowe. “This is likely to take some time and the Council stands ready to be patient.”

Last month, the central bank surprised many by dropping commitments to keep bond yields low, so there are some speculations that that could change again by marking an early end to its bond-buying campaign.

The US Federal Reserve made a mistake last week by opening the door to a faster reduction of its asset purchases, and thus leading to an early rate hike.

Instead, the RBA Board stuck with a plan to reconsider bond purchases in February when it would hold A$350 billion ($246.51 billion) of Australian government debt.

Most analysts assume the Board will halve its buying to A$2 billion ($1.41 billion) per week and stop by mid-year, although there is also a risk it could stop altogether in February.

The RBA is optimistic on the economic outlook as high vaccination rates allow lifting of the coronavirus lockdown.

The labor market recovered much more quickly than expected with salaries in October higher than before the lockdown in June as companies complained of an insufficient workforce.

Job advertisements jumped 7.4% in November alone, hitting their highest level in more than 13 years.

Retail sales have skyrocketed higher as consumers are released from lockdown, and there’s a lot to spend after months of being forced to downsize.

CBA chief economist Stephen Halmarick estimates about A$240 billion of excess savings accumulated during the lockdown will be spent in the coming Christmas shopping season.

Using e-card sales data, the CBA expects household spending intentions to rise 2.1% in November, from the previous month, to recover all losses since the start of the pandemic.

From a technical point of view, AUD/USD is in a fairly strong bearish trend, indicated by the movement of the daily candles below the 50, 100, and 200 MA lines. AUD/USD was even able to pass the support in the 0.71000 area without any major problems.

This is of course due to the bullish sentiment for the United States since a few weeks ago as a result of the issue of increasing US interest rates and the Fed’s tapering policy, thus bringing a downward impact on AUD/USD.

Now, AUD/USD is in upward correction towards the key level, which most likely will retest to continue its decline.

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