With the US Federal Reserve indicating it will begin lifting interest rates as early as March, another domino has fallen on the RBA’s path to exiting its extraordinary pandemic monetary policy settings.
RBA governor Philip Lowe has three considerations for the future of the bank’s $350 billion bond buying program and subsequent moves to lift the record low 0.1 per cent overnight cash rate.
First, and most important, is the actual and expected progress towards the central bank’s goals of full employment and inflation sustainably within its 2 per cent to 3 per cent target band.
Second, the functioning of Australia’s bond market.
And third is the actions of other central banks.
With that in mind, Dr Lowe outlined three potential outcomes from the bank’s February board meeting scheduled for this Tuesday.
First, tapering the $4 billion weekly bond purchases and terminating the program in May.
Second, tapering the program but with a review in May
And third, terminating the program altogether from February.
At the time, just seven weeks ago, Dr Lowe said the first option – termination in May – was consistent with the outlook for employment and inflation.
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