The Reserve Bank of Australia may end its asset purchase programme as early as February, said governor Philip Lowe, in the latest shift by a global central bank towards tighter monetary policy.
Lowe said on Thursday that an early end to the RBA’s quantitative easing programme — under which it buys government bonds at a pace of A$4bn (US$2.9bn) a week — was one of three options discussed at a recent board meeting.
The governor’s comments highlighted the strength of Australia’s economic recovery and came hours after the Federal Reserve said it would reduce the pace of asset purchases in the US.
But Lowe suggested he was in no hurry to raise interest rates and any move to halt asset purchases would not affect the timing of that decision. “We view the two decisions as completely separable,” he said.
Speaking to a forum of accountants in Wagga Wagga, New South Wales, Lowe said that one option was to end RBA asset purchases in February if progress towards its employment and inflation goals went faster than expected.
The other possibilities were to taper purchases and end them in May, or taper and then review the programme in May, based on whether the economy’s progress was in line with November forecasts or slower.
“If better than expected progress towards the board’s goals was made, then the case to cease bond purchases in February would be stronger,” Lowe added.
An early end to the programme appeared to become more likely after new data showed a sharp rebound in the labour market.
Australia’s labour force survey for November, released after Lowe’s speech, showed a jump of 366,100 in the number of people employed. That reduced the jobless rate from 5.2 per cent in October to 4.6 per cent.
The rate of participation in the labour force rose to 66.1 per cent, close to the record of 66.3 per cent.
The labour market data exceeded the RBA’s forecasts in November, which projected the unemployment rate a little below 5 per cent by the end of the year.
The RBA began its quantitative easing programme in November 2020, much later than other central banks, having been reluctant to do so before succumbing to the risk of exchange rate appreciation.
“We were very much influenced by the actions of other central banks,” said Lowe in a question-and-answer session after the speech.
The Federal Reserve’s signal on Wednesday that it would taper at a faster rate could be a factor in the RBA’s February decision. “At the margin, if they [other central banks] stop doing this, it increases the probability of us doing the same as well,” Lowe said.
Lowe said the decision would be based on further readings on inflation, the labour market, spending in the economy and the effects of the Omicron coronavirus variant.
Omicron represents a downside risk, Lowe said, but he expected positive momentum in the economy to continue through the summer, underpinned by the end of lockdowns, high rates of vaccination, significant fiscal and monetary support and strong household and business balance sheets.
However, rate rises would probably take time because the economy was a “fair way away” from the point where inflation was sustainably in the RBA’s target range of 2-3 per cent, he said.
Source: Economy - ft.com
