Australia’s central bank kept its main policy instruments unchanged on Tuesday after the global bond liquidation cooled and as the impact of historically low interest rates on asset markets emerges.
Reserve Bank of Australia Governor Philip Lowe and his board of directors kept the spot rate and three-year yield target at 0.10% and made no changes to the schedule. purchase of longer-term bonds. The central bank releases its biannual financial stability review on Friday, which is expected to focus on loans and housing.
“Given the environment of rising house prices and low interest rates, the bank will carefully monitor trends in mortgage lending,” Lowe said in A declaration. “It is important that lending standards are maintained.”
House prices in Australia jumped in Marchmost since 1988, when the economic recovery and cheap mortgages prompted buyers to return to the market. The RBA has been able to revert to its usual bond-buying regime as the global reflation trade that has pushed up yields moderates, a turnaround accompanied by a depreciation of the local currency that will appeal to investors. policy makers.
What Bloomberg Economics Says …
“The RBA’s focus on credit growth is, in our opinion, overly optimistic. Increase in loan approvals and pickup in housing turnover means an acceleration in credit growth is set to emerge over the next few months, which is likely to catch the RBA and APRA behind the ball in terms of policy response. “
– James McIntyre, economist
Lowe is to decide in the coming months whether to keep the April 2024 obligation as the bank’s YCC target or to extend to the November 2024 deadline. He reiterated in today’s statement that the board of administration will consider doing so later in the year.
The governor Noted that the first A $ 100 billion ($ 76.5 billion) of longer-term central bank bond purchases are nearing completion, and the second program of the same amount will begin next week.
“Beyond that, the bank is ready to undertake other bond purchases if this allows progress towards the goals of full employment and inflation, ”he said.
Australia’s recovery has been supported by the early removal of Covid-19. However, isolated outbreaks have prompted local lockdowns and some states to close their borders, disrupting economic activity.
Most recent outbreak in north Brisbane city forceda three-day lockdown and coincided with the national government ending its JobKeeper wage subsidy program, raising fears the combination has exacerbated job losses.
Australia recouped jobs lost during the pandemic, dropping unemployment to 5.8% in February. Still, the surge in hiring could come to a halt in the coming period, with the Treasury estimating that the removal of JobKeeper could result in the loss ofUntil 150,000 roles.
“The economy is operating with considerable reserve capacity and unemployment is still too high,” Lowe said Tuesday. “It will take some time to reduce this spare capacity and for the labor market to be tight enough to generate wage increases consistent with the achievement of the inflation target.”
Meanwhile, the rise in Down Under house prices is garnering attention, with Sydney jumping 3.7% last month and 6.7% in the first quarter. As house prices rise from Singapore to Canada and the United States to Australia, they threaten to inflate an already worrisome pile of household debt.
(Updates with Bloomberg Economics commentary in the fifth paragraph.)
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