(Bloomberg) — Australia’s central bank is considering three options for its quantitative easing program ahead of a formal review next year, including ceasing bond purchases as soon as February, Governor Philip Lowe said.
The board discussed the options at last week’s meeting, with the first being to further taper from the current weekly rate of A$4 billion ($2.9 billion) with the expectation that buying will stop in May, Lowe said in the text of a speech Thursday. The second option was also to taper and follow up with a second review in May; while the third option was to scrap the program altogether.
“We have made no decision yet. Much will depend upon the news we receive between now and when we meet in February,” Lowe said in his last official outing of the year, held in Wagga Wagga, regional New South Wales, where the governor grew up.
Discussion about the fate of Australia’s bond program comes as the Federal Reserve announced overnight an acceleration of its tapering as it tries to counter accelerating inflation.
The RBA board doesn’t meet in January, so it has time to asses the economy before making a final call on QE. By then, it will have a reading on fourth-quarter inflation, as well as labor market reports for November and December.
“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 said. “Alternatively, if progress is slower than expected, or if the outlook becomes more uncertain, the case for retaining flexibility and reviewing again in May would be stronger.”
Lowe reiterated he won’t be raising interest rates from the current record low 0.1% until actual inflation, not forecast, is sustainably within the central bank’s 2-3% target. He also dismissed market wagers on rate hikes next year, citing RBA forecasts that show underlying inflation will only reach the mid-point of the band in late 2023.
“The board is prepared to be patient,” he said.
Lowe put a positive spin on the A$2.1 trillion economy, noting spending has bounced back quickly after virus lockdowns were lifted in the country’s populous east coast.
He expects the positive momentum to be maintained through the holiday period, underpinned by high rates of vaccination, significant fiscal and monetary support together with stronger household and business balance sheets.
A new fast-spreading coronavirus variant was a reason for caution, the governor added. “The Omicron outbreak does, though, represent a downside risk and it is difficult to know how things will develop from here,” Lowe said.
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