Australia’s central bank (RBA) said further policy easing is likely to “gain more traction” as restrictions are lifted across the economy and agreed the governor would flag the shift to targeting actual over forecast inflation.
“As the economy opens up, members considered it reasonable to expect that further monetary easing would gain more traction than had been the case earlier,” the Reserve Bank of Australia said in minutes of its October meeting in Sydney. “Some parts of the transmission of easier monetary policy had been impaired as a result of the restrictions on activity.”
The board reiterated that addressing high unemployment was an “important
Australia’s jobless rate advanced to 6.9% in September and the central bank said it was now expected to peak below the 10% level projected in the August update of economic forecasts.
The RBA has signalled it’s considering further measures to support the recovery as the southeastern state of Victoria reopens from a hard lockdown. Policy makers expanded a bank lending program in September, delivering additional stimulus after having cut the cash rate to 0.25% and set the same level as the three-year bond-yield target in March.
The minutes showed that the board decided the forward guidance switch toward placing “more weight on actual, not forecast, inflation in its decision-making,” would be communicated by Governor Philip Lowe in his speech on October 15, to allow for greater context than “was possible in the post-meeting statement.”
The board discussed the possible impact of further easing on financial stability, noting it would actually help reduce risks “by strengthening the economy and private sector balance sheets,” through the reduction of non-performing loans.
“This benefit would need to be weighed against any additional risks as investors search for yield in the low interest rate environment,” the RBA said, specifically highlighting the housing market.
The board also noted the larger balance sheet expansions by other central banks “was contributing to lower sovereign yields in most other advanced economies,” the minutes showed. Members discussed “the implications of this for the Australian dollar exchange rate.”