3 Feb 2021
Reserve Bank of Australia policy decision - February 2021
Article written by Chris Lioutas
The Reserve Bank of Australia (RBA) decided to maintain their current monetary policy settings at their February meeting. These settings include:
- Cash Rate of 0.10%
- Manage the 3-year government bond yield at/around 0.10%
- Providing banks with funding through their term funding facility
The RBA also announced that it’s decided to conduct another $100 billion round of quantitative easing (money printing) to purchase bonds issued by the Australian Government and states/territories when the current program is completed in mid-April. The first round of $100 billion was announced at the November meeting. The aim of the program is to support federal and state levels of government in funding their stimulus programs (ie. deficits) and to put downward pressure on the Australian dollar which has risen strongly since November 2020 due to soaring iron ore prices.
In their policy decision statement, the RBA confirmed that the recovery remains dependent on the health situation and on significant fiscal and monetary support. They noted that the Australian economic recovery had begun and that employment had improved faster than expected. However, inflation and particularly wages growth remained underwhelming and this is likely to continue for some time.
The Board reiterated that it will not increase the Cash Rate until actual inflation is sustainably within the 2-3% range, but made clear that we would need to return to tight labour market conditions for that to occur, which isn’t expected until 2024 at the earliest.
All in all, the announcement was in line with OUR expectations.
The additional quantitative easing will put further downward pressure on government bond yields which in turn will put further downward pressure on the Australian dollar, all whilst supporting government efforts to help stimulate the economy.
As always, if you have any questions or your personal circumstances have changed please do not hesitate to contact your financial adviser.