By James Glynn
SYDNEY--The Reserve Bank of Australia left official interest rates unchanged at record lows at its last policy meeting for 2020 on Tuesday, while signaling rising confidence for the future as the economy staggers back to life after a year of massive virus-related disruption.
The RBA left its official cash rate at 0.10%, and maintained its three-year government bond yield target at the same level. The central bank also recommitted to its $100 billion Australian dollar (US$73.42 billion) quantitative easing program, which it announced in November.
"The economic recovery is under way and recent data have generally been better than expected. This is good news, but the recovery is still expected to be uneven and drawn out and it remains dependent on significant policy support," RBA Governor Philip Lowe said in a statement.
The central bank's decision comes a day ahead of third-quarter GDP growth data which are expected to show the economy exiting the sharp downturn that emerged as the Covid-19 virus forced nationwide lockdowns of firms and personal movement from around March.
The economy contracted 7% in the second quarter, the biggest hit to growth in close to a century, sending the country into its first recession in close to 30 years. In response, the RBA cut interest rates and put in place alternative policy measures like QE for the first time. The federal government also massively increased spending to support firms and workers.
While stronger growth is now widely expected in 2021, the RBA has warned that it expects an uneven recovery as a Covid-19 vaccine becomes widely available, adding that it would be a mistake to withdraw economic stimulus too soon.
It won't be until the end of 2021 that GDP growth reaches the level attained at the end of 2019. GDP is expected to grow around 5% next year and 4% in 2022, Mr. Lowe said.
The RBA expects a long-term battle to lower unemployment, with excess capacity in the job market likely to remain stubbornly in place.
"The extended period of high unemployment and excess capacity is expected to result in subdued increases in wages and prices over coming years," Mr. Lowe said.
Globally, the RBA is less certain about the outlook as infection rates soar in Europe and the U.S.
"The recoveries in these economies have lost momentum. On the other hand, there has been positive news on the vaccine front, which should support the recovery of the global economy," Mr. Lowe added.
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