The RBA keeps the cash rate at 0.10%, as expected. Ends QE

• Previously was 0.10%
• Closes QE with final purchases to take place on 10 February

• Previous QE rate was A $ 4 billion per week
• Although inflation has picked up, it is too early to conclude that it is sustainable within the target range.
• Reiterates that it “will not increase the cash rate until actual inflation is sustainable within the target range of 2 to 3 per cent”[ads1];
• There is uncertainty about how sustained the increase in inflation will be when supply-side problems are resolved
• Wage growth will also remain modest, and it will probably take some time before overall wage growth is at a pace that is consistent with inflation being sustainable on target.
• The RBA says it is “prepared to be patient while monitoring the evolution of the various factors affecting inflation in Australia”
• RBA balance is around $ 640 billion
• The RBA will consider the issue of balance sheet investment in May

In the December statement, the RBA hinted that it could end QE in ‘mid-February’. The program was widely expected to end today.

Earlier, the RBA had said that only a gradual increase in underlying inflation was expected. In the same month, core prices rose 1.0% m / m, data showed last week. Since then, market prices for increases have picked up, and there was a 14% chance of a price increase next month, rising sharply from there.

This statement should be read as a push-back against these expectations, and therefore it is no surprise that the AUD / USD has taken a quick turn to 0.7040 from 0.7070 in advance.

More:

• faster than expected progress has been made towards the RBA’s goals, and further progress is likely
• The central forecast is a GDP growth of around 4¼ per cent in 2022 and 2 per cent in 2023
• high numbers of vacancies indicate a further increase in employment in the months ahead
• The central forecast is that unemployment will fall below 4 per cent later in the year and be around 3¾ per cent by the end of 2023.
• Wage growth has picked up, but at the aggregate level it has only returned to the relatively low rates before the pandemic
• A gradual increase in wages is expected
• The central forecast is that underlying inflation will increase further in the coming quarters to around 3¼ per cent, before falling to around 2¾ per cent during 2023 as supply-side problems are resolved and consumption patterns are normalized.

The RBA’s previous forecast for inflation was not to hit underlying inflation of 2.5% until 2023. Now it says that there will be a short-term increase that will fix itself, and then the pace will fall to 2.75% during 2023.