Finance

The Australian central bank is keeping interest rates close to zero as the economy picks up pace

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© Reuters. FILE PHOTO: Two women walk next to the Reserve Bank of Australia headquarters in central Sydney

From Swati Pandey

SYDNEY (Reuters) – Australia’s central bank left its key interest rates near zero for a fifth straight meeting on Tuesday and pledged to keep politics loose for an extended period of time, even if the economy is rapidly diverging from that of COVID-19 led downturn recovered.

The Reserve Bank of Australia (RBA) reiterated its commitment to keep policy rates at the record low of 0.1% for as long as necessary to lower unemployment and raise inflation.

The anticipated decision by the RBA comes because it painted a rosy picture of the A $ 2 trillion ($ 1.55 trillion) economy and raised its growth forecast from 3.5% in February to 4.75% in 2021.

The unemployment rate will drop to around 5% at the end of this year and to 4.5% in December 2022. In February, the RBA’s unemployment forecast was 5.5% through the end of 2022.

“The economic recovery in Australia has been stronger than expected and is expected to continue,” said RBA Governor Philip Lowe in a brief statement after the meeting.

“Business investment is expected to pick up and household spending will be helped by strengthening balance sheets over the past year,” Lowe said.

Still, the RBA signaled that it would not be ready to hike rates until 2024 at the earliest, which equates to big central banks ready to heat up their economies to boost inflation, which has been elusive for years.

“The RBA … remains afraid of tightening monetary policy too early as concerns stifle economic recovery,” said Anthony Doyle, cross-asset specialist at Fidelity.

The central bank, which is making the return to full employment a high priority, will release detailed economic forecasts on Friday at 01:30 GMT.

LIVING BOOM

To mitigate the economic shock from last year’s coronavirus pandemic, the RBA cut interest rates three times, announced a YCC (Yield Curve Control) program to keep three-year government bond yields at 10 basis points, and initiated massive quantitative easing a longer-term bond program.

The current A $ 100 billion ($ 77.40 billion) quantitative easing program ends in September and the Board of Directors will review future bond purchases at its board meeting in July.

The RBA’s efforts are complemented by the Australian federal government, which has abandoned its longstanding obsession with creating budget surpluses and pledged not to include “sharp austerity pivots” in its May 11th budget update.

Solid monetary and fiscal stimulus has sparked a fire in the Australian property market, where prices are reaching record highs, largely driven by demand from owner-occupiers and first-time buyers.

However, official loan approval data released Tuesday showed that investors were also returning to the market.

“Should investor activity continue to increase, it would increase the potential for macroprudential regulation in the sector, as it was previously noted that strong investor activity has the potential to extend the real estate cycle,” said Tapas Strickland, Sydney-based economist for the National Australia Bank (OTC :).

The RBA noted the rise in prices and said it was carefully following trends in residential real estate borrowing.

($ 1 = 1.2920 Australian dollars)

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Steven Gregory