(Adds quote from Economist, RBA Economic Forecast)
SYDNEY, Aug. 3 (Reuters) – Australia’s central bank surprised markets on Tuesday by sticking to its decision to cut its bond buying program from September, expecting the blow to the economy by the Delta variant of the coronavirus is temporary.
The Reserve Bank of Australia (RBA) kept its policy rate at 0.1% for its eighth consecutive meeting, a widely anticipated move. He reiterated that interest rates will not be raised until inflation is durably within its target range of 2-3%, a target that will likely not be reached before 2024.
The RBA also confirmed its July decision to reduce its purchases of government bonds to A $ 4 billion per week from September from the current weekly pace of A $ 5 billion, surprising markets betting on higher or stable purchases.
This move sent the Aussie dollar to a daily high of $ 0.7408.
In a brief statement after the meeting, RBA Governor Philip Lowe gave an optimistic note to Australia’s economy, which recovered from a 2020 pandemic-induced recession much faster than expected.
“The recent virus outbreaks are interrupting the recovery, however, and GDP is expected to decline in the September quarter,” Lowe said.
The highly transmissible Delta variant of the coronavirus has taken hold in Sydney with nearly 4,000 infections since mid-June despite weeks of lockdown.
The state of Queensland is also struggling with a smaller outbreak with Brisbane, Gold Coast and Sunshine Coast under strict stay-at-home orders. Australia’s second most populous city, Melbourne, emerged from a two-week lockdown last month after controlling its Delta outbreak.
“The experience to date has been that once virus outbreaks are contained, the economy rebounds quickly,” Lowe said.
He noted that the economy enjoys “significant” political support, adding that the ongoing COVID-19 vaccination plan would also help the recovery. Australia lags behind its rich world peers with less than 20% of its adult population fully vaccinated.
Lowe said the economic outlook for the coming months was “uncertain”, although the RBA expects solid GDP growth of 2.5% in 2023, in addition to “just over 4% “in 2022.
“The Bank’s updated forecast is decidedly hawkish,” said Marcel Thieliant, economist at Capital Economics.
“The RBA’s decision not to delay reducing its asset purchases is a hawkish signal and consistent with our view that the Bank will hike rates early in 2023.”
Economists in a Reuters poll conducted last week pushed back expectations for the next RBA rate hike in the third quarter of 2023, after they previously predicted a 15 basis point increase in the second quarter.
For its part, the RBA expects the cash rate to remain at 0.1% through 2024 with inflation seen at 1.75% in 2022 and 2.25% in 2023.
Its forecast for the labor market is also more optimistic, with an unemployment rate falling to 4.25% at the end of 2022 and 4% in December-2023, from 4.9% in June.
The RBA will release detailed forecasts on Friday. (Reporting by Swati Pandey; Editing by Sam Holmes)