The RBA has left rates on hold at their effective lower bound of 0.1 per cent at its first meeting of 2021 but will purchase an additional $100 billion in government bonds issued by the states and territories.
“The outlook for the global economy has improved over recent months due to the development of vaccines. While the path ahead is likely to remain bumpy and uneven, there are better prospects for a sustained recovery than there were a few months ago,” RBA governor Philip Lowe wrote.
“That recovery, however, remains dependent on the health situation and on significant fiscal and monetary support. Inflation remains low and below central bank targets.”
The announcement comes as the Morrison government turns its gaze away from stimulus support and towards the recovery, promising to have every Australian vaccinated by October and tamping down on calls for more JobKeeper and permanent changes to JobSeeker. The IMF recently revised Australia’s GDP growth upward, while Prime Minister Scott Morrison anticipates that Australians will spend big to fund the recovery, unleashing the “huge sums” that have been saved as a result of lockdowns.
“Our task now is to continue our economic recovery by sticking to our economic recovery plan and, importantly, exercising the fiscal discipline necessary to ensure that we do not overburden future generations and continue to spend taxpayers’ money wisely. We are not running a blank cheque budget,” Mr Morrison said.
However, the emergence of mutant strains of COVID-19 – which are suspected to be both more transmissible and deadly – could threaten this otherwise optimistic outlook. More insight can be expected on Wednesday, when Mr Lowe will deliver his forecast for 2021 at the National Press Club. Mr Lowe will also front the standing committee on economics on Friday.
I doubt we’ll get more insights on Wednesday – just more of the same old… The RBA snookered itself (and us!) by lowering interest rates too quickly and leaving themselves with too little room to move and unwilling/unable to raise rates when they should, because a lift from 0.1% to (say) 0.4% is in effect a 400% increase, rather than a 03% increase. They’ve allowed and encouraged debt to grow to a point where they CAN’T raise rates without crippling the economy – and being blamed for doing so! Any RBA board member with any brains would have resigned/retired about a year ago. You’d hate to be in their shoes now…