The Bank of Australia will reduce bond purchases and maintain interest rates at historically low levels Reuters

Swati Pandey

SYDNEY (Reuters)-The Bank of Australia on Tuesday kept its cash rate at a record low of 0.1% and said it might stay until 2024, but it did curtail bond purchases.

As generally expected, the Reserve Bank of Australia (RBA) retained the 0.1% three-year yield target for the April 2024 bonds and announced the third round of quantitative easing, albeit on a smaller scale than the previous two rounds.

The Bank of Australia will continue to buy government bonds at a rate of 4 billion Australian dollars a week after the current September deadline, instead of the current 5 billion Australian dollars.

Analysts surveyed by Reuters have unanimously predicted that the Reserve Bank of Australia will limit its yield target to April 2024 instead of extending it to November. In terms of quantitative easing policies, most people expect a “flexible” environment. [AU/INT]

In a brief statement after the meeting, Governor Philip Lowe stated that Tuesday’s measures will “provide the sustained monetary support needed for the economy to transition from the recovery phase to the expansion phase.”

Lowe will hold a media conference at 0600 GMT.

The Bank of Australia cut interest rates three times last year to current historical lows and launched a large-scale bond purchase program to reduce borrowing costs and stimulate consumption.

Monetary stimulus measures combined with government financial support have boosted Australia’s A$2 trillion economy, which has now surpassed its pre-pandemic level. The job market is rapidly tightening, the real estate market is heating up, and consumer spending is active.

Last week, Australia’s largest city, Sydney, entered the strictest coronavirus lockdown since the pandemic began, while other major cities have also implemented some containment measures.

In the case of slow and dysfunctional vaccination schedules, these restrictions may weaken Australia’s excellent economic performance, so far only about 9% of adults have been vaccinated, the lowest among developed countries.

The Bank of Australia acknowledges the strength of recent data, but emphasizes that the recent virus outbreak is a key uncertainty in the near future. Lowe reiterated that the central bank of Australia’s core vision for the economy is that it will not achieve its inflation and employment targets before 2024.

The RBA’s dovish tendencies are in stark contrast to its New Zealand counterparts, which in May became one of the first advanced economies to show the stimulus measures taken during the COVID-19 pandemic.

Economists at BNZ, a branch of National Australia Bank (OTC:), predict that the Reserve Bank of New Zealand (RBNZ) will start raising interest rates later this year, thanks to the strong economic recovery brought about by the pandemic.

Most Australian economists will not see the Reserve Bank of Australia raise interest rates until mid-2023.