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Delta outbreak won’t derail economy: RBA

James Mitchell
10 September 2021 1 minute readShare
Delta outbreak won’t derail economy

Reserve Bank governor Philip Lowe is confident the Australian economy will continue to thrive despite the impact of ongoing lockdowns.

At its 7 September meeting, the RBA decided to leave the cash rate unchanged, noting that it will not increase the record-low 10 basis point rate until inflation is sustainably within the 2% to 3% target range.

“This setback to the economic expansion is expected to be only temporary,” Mr Lowe said.

“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.”

However, Mr Lowe warned that there is uncertainty about the timing and pace of this bounce-back and admitted 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,” he said.

Notwithstanding the strong economic and labour market outcomes pre-Delta, wage and price pressures remain subdued. Over the year to the June quarter, the wage price index increased by just 1.7%.

The RBA governor noted that very accommodative financial conditions will continue to support the recovery of the Australian economy.

“Borrowing rates are at record lows, sovereign bond yields are at very low levels and the exchange rate has depreciated over recent months. The fiscal responses by the Australian government and the state and territory governments are also providing welcome assistance in supporting household and business balance sheets,” he said.

The central bank decided to extend its bond purchases at $4 billion a week until at least February 2022, reflecting the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak.

Delta outbreak won’t derail economy: RBA
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James Mitchell

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