RBA presses ahead with plans to scale back stimulus
The Reserve Bank of Australia will be going forward with its plans to scale back its bond purchasing program in September, despite the economic fallout caused by the delta outbreak.
Though faced with a fresh batch of problems in the form of a prolonged NSW lockdown, RBA governor Philip Lowe struck an optimistic tone in his post-meeting statement, saying fiscal support and the vaccination rollout will help the economy to recover.
“Prior to the current virus outbreaks, the Australian economy had considerable momentum and it is still expected to grow strongly again next year,” he said.
In the Bank's central scenario, GDP is expected to grow by just over 4 per cent in 2022 and by around 2½ per cent in 2023.
With stay-at-home orders in Sydney expected to hit the economy hard, it’s unlikely the RBA will move to normalise policy settings before 2024, as many private sector analysts had predicted.
Lowe reiterated the point today, saying wage growth has not yet hit its stride and, despite the recent spike in demand for some products, inflation is unlikely to settle within the RBA’s target band for some time yet.
Lowe will appear before the House of Representatives economics committee on Friday, the same day the RBA’s quarterly statement on monetary policy is due for release.
How is the property market currently faring?
Property prices continue to rise, with CoreLogic’s home value index recording a 1.6 per cent increase for capital cities and 1.7 per cent increase across regional areas in July.
But the pace of growth has slowed in recent months as affordability constraints begin to set in. This was most pronounced in Sydney, where dwelling price appreciation fell from 3.7 per cent in March to 2 per cent last month.
Economists at Westpac believe the latest string of lockdowns will deprive the market of further momentum in the near term, but expect activity to rebound once restrictions are lifted and property prices to end the year up 18 per cent.
As for mortgage rates, lenders continue to cut both variable and short-term fixed options while lifting rates on longer terms — a trend which Mozo’s banking expert Peter Marshall expects to continue.
“The current disruptions to the Australian economy mean that the cash rate is more likely to stay where it is for a longer period, and that will give lenders room to trim variable and short-term rates,” he said.
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Read last month's Reserve Bank interest rates update.
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