The minutes of the RBA’s 1 June monetary policy meeting released on Tuesday revealed that the board had delayed any decision around the continuation of its bond purchase program – the second tranche of which was due to be completed in September – until July.
However on the heels of economists predicting the bank will continue its swathe of bond purchases, board members noted they believed it would be “premature” to cease the program that had been “one of the factors underpinning the accommodative conditions necessary for the economic recovery”.
“The board remained committed to doing what it reasonably could to support the Australian economy, and would maintain highly supportive monetary conditions until its goals for employment and inflation were achieved,” the minutes noted.
“Members agreed that the current package of monetary policy measures continued to support the economy by encouraging an ample supply of credit to the economy and keeping financing costs very low.”
At the end of the second $100 billion tranche of bond purchases in September, the RBA noted it would own around 30 per cent of total Australian government securities and 15 per cent of total state and territory bonds.
While the central bank said inflation was likely to “temporarily” jump above 3 per cent in the June quarter due to “the reversal of some COVID-19-related price reductions”, the increase was likely to be fleeting as improving economic growth and border-related skill shortages were still not pulling through into across the board wage increases for employees.
“Members noted that the strong focus on cost containment by businesses meant that it would take some time for spare capacity to be reduced and the labour market to be tight enough to generate wage increases consistent with achieving the inflation target,” the bank said.
“Moreover, it was likely that overall wages growth would need to be sustainably above 3 per cent to achieve the target, and this is well above the current level.”
The bank said its “central forecast scenario” was for inflation to hit 1.5 per cent in 2021 and 2 per cent by mid-2023, while its target band was between 2 and 3 per cent.
