Australia will ‘bounce back’ from Delta: RBA

Reserve Bank governor Philip Lowe says the nation will “bounce back” from devastating Delta lockdowns, as the central bank announced it would begin winding back its extraordinary level of monetary stimulus.

In a statement accompanying the decision at Tuesday’s board meeting to hold rates steady at 0.1 per cent, Dr Lowe said Australia’s economic recovery had been “interrupted” by the Delta outbreak and associated health measures, which have put more than half of the population under stay at home orders since early August.

“GDP is expected to decline materially in the September quarter and the unemployment rate will move higher over coming months,” he said.

But: “This setback to the economic expansion is expected to be only temporary”.

“The Delta outbreak is expected to delay, but not derail, the recovery. As vaccination rates increase further and restrictions are eased, the economy should bounce back,” Mr Lowe said.

“There is, however, uncertainty about the timing and pace of this bounce-back and it is likely to be slower than that earlier in the year.”

“Much will depend on the health situation and the easing of restrictions on activity. In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year.”

The RBA board’s decision to reduce the pace of weekly purchases from $5bn to $4bn “until at least February 2022” will surprise many in financial markets who had expected Dr Lowe to renege on the plan, which was announced in early July and before the full extent of the Delta lockdowns had become clear.

Bank economists have pencilled in a contraction of as much as 4 per cent in the current quarter, and worry that the recovery could prove anaemic as Australians learn to live with Covid.

In his statement, Dr Lowe characterised extending QE beyond its initial $100bn quota – which will be reached this month – as providing additional monetary support, rather than scaling it back, saying the decision to keep buying bonds “reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak”.

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