Australia's RBA sees growth returning after Delta, but no rate rise

Reuters

Published Oct 18, 2021 09:14PM ET

Updated Oct 19, 2021 01:00AM ET

SYDNEY (Reuters) -Australia's central bank expects the economy to return to growth in the current quarter after an outbreak of the Delta variant of COVID-19 derailed a recovery, but still does not expect to raise interest rates until 2024, board minutes showed on Tuesday.

The bounce-back, helped by rising vaccination rates that have allowed New South Wales and Victoria states to start reopening after months-long lockdowns, would be slower than the pick-up a year earlier after the first wave of COVID-19, minutes of the Reserve Bank of Australia's Oct. 5 policy meeting showed.

"In the central scenario, the economy would return to growth in the December quarter and to its pre-Delta path in the second half of 2022," the RBA said.

Surging housing prices and credit were discussed by the Board, which felt that while tighter monetary policy would slow the housing frenzy it would also lead unacceptably to fewer jobs and lower wages growth.

Instead, the Board saw enforcement of lending standards and loan serviceability requirements as the appropriate tools to manage the surge. The banking regulator increased mortgage serviceability buffer requirements on Oct. 6.

"If housing prices and lending remain firm into 2022 we could see a further lift in the serviceability buffer," Commonwealth Bank senior economist Katrina Clifton said in a report.

The RBA slashed its official cash rate to a record low of 0.1% last year to support the economy during the pandemic, and has since consistently said it does not expect to raise interest rates before 2024 given sluggish wages growth and inflation.

Markets however have been pricing in rate rises before then, particularly as some other central banks, including neighbouring New Zealand, have started to tighten policy.