Highlights of the RBA minutes of the August 3 meeting:
- health outcomes will continue to present the main source of uncertainty for the economic outlook.
- restrictions on activity were expected to result in a substantial decline in average hours worked
- members noted that the eventual lifting of restrictions and underlying strength in economic conditions are expected to result in the labour market recovery regaining momentum
- Underlying inflation was likely to remain subdued over subsequent quarters, given the expected decline in activity in the September quarter and the absence of broad-based inflationary pressures, and then gradually increase to 2¼ per cent by the end of 2023
- Bond purchase program will continue to reviewed in light of economic conditions and the health conditions
- The Board would be prepared to act in response to further bad news on the health front should that lead to a more significant setback for the economic recovery
There's a bit of FX commentary in the report:
The US dollar had appreciated against most currencies over the preceding couple of months. The Australian dollar had correspondingly depreciated to around its lowest levels in 2021. Members noted that this had occurred despite commodity prices being at high levels
Here is a key paragraph on delaying the taper:
The current virus outbreaks and lockdowns had interrupted the recovery and many households and businesses were facing difficult conditions. Members therefore considered the case for delaying the tapering of bond purchases to $4 billion a week currently scheduled for September 2021. They noted that the outlook for the economy is for a resumption of strong growth in 2022. Members judged that any additional bond purchases would have their maximum effect at that time, with only a marginal effect at present, which is when the extra support might be required.
They go onto point to fiscal support as a more important lever but later add: "The Board would be prepared to act in response to further bad news on the health front should that lead to a more significant setback for the economic recovery"
Background:
- Cash rate was maintained at 0.10% as expected at the meeting
- Highlights of the meeting were here
- RBA stuck to tapering schedule at the meeting, despite some speculation they may ease the taper
- Guidance shows RBA doesn't expect to raise case rate until 2024 at the earliest
- Full statement
