Australia central bank expands QE by A$100B, vows to keep rates at close to zero

The Reserve Bank of Australia left interest rates close to zero but will expand its quantitative easing program by A$100 billion to boost the economic recovery from the coronavirus pandemic.

The central bank will purchase an additional A$100 billion worth of bonds issued by the Australian government and states and territories, continuing at the current pace of A$5 billion per week, when the current program expires in mid-April.

"The current monetary policy settings are continuing to help the economy ... The decision to extend the bond purchase program will ensure a continuation of this monetary support," Reserve Bank of Australia Governor Philip Lowe said in a statement.

Australia's economic recovery from the pandemic "is well under way and has been stronger than was earlier expected," Lowe said. However, the economy would still operate with "considerable spare capacity for some time to come," Lowe added, with significant employment gains and a return to a tight labor market not expected to be achieved until 2024 at the earliest.

"The Board remains committed to maintaining highly supportive monetary conditions until its goals are achieved. Given the current outlook for inflation and jobs, this is still some way off," Lowe said.

Australia's GDP is expected to return to its 2019-end level by the middle of 2021, according to the central bank, which projected growth of 3.5% for both 2021 and 2022. The unemployment rate is forecast to end 2021 and 2022 at 6% and 5.5%, respectively.

The central bank maintained its cash rate and target for the three-year government bond yield at 0.1%. It vowed not to raise the cash rate until inflation is sustainably within its target range of 2% to 3%.

"For this to occur, wages growth will have to be materially higher than it is currently," Lowe said.