The Bank of Australia keeps policy patience and is not eager to downsize Reuters

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© Reuters. File photo: On March 1, 2016, a worker is reflected on the wall of the Reserve Bank of Australia (RBA) headquarters in the center of Sydney, Australia. REUTERS/David Gray/File Photo

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Wayne Cole

Sydney (Reuters)-The Bank of Australia on Tuesday maintained interest rates at an ultra-easy level of 0.1% and insisted on its bond purchase plan to resist the pressure to follow the US central bank to end its stimulus plan early.

At the end of the last policy meeting this year, the Board of Directors of the Reserve Bank of Australia (RBA) noticed the emergence of the Omicron variant, but believed that it would not undermine the rapid economic recovery.

Crucially, although inflation has picked up, it is still lower than in many other developed countries, and given the obvious inertia of wage growth, it may only rise gradually.

“The board is committed to maintaining highly supportive monetary conditions to achieve its goals,” said Philip Lowe, Governor of the Bank of Australia. “This may take some time, and the board of directors is prepared to wait patiently.”

The central bank cancelled its pledge to keep bond yields low last month, which surprised many people, so some speculated that the central bank might end bond purchases early, which would change again.

Last week, the Fed opened the door to speed up the pace of reducing asset purchases, thereby raising interest rates early, which caught the market by surprise.

Instead, the RBA board insisted that it plans to reconsider its bond purchase plan in February, when it will hold A$350 billion (US$246.51 billion) of Australian government bonds.

Most analysts believe that the board will halve purchases to 2 billion Australian dollars (1.41 billion U.S. dollars) every week and stop buying in the middle of the year, but it is also possible that they will stop buying completely in February.

The Reserve Bank of Australia is optimistic about the economic outlook because the high vaccination rate allows the coronavirus lockdown to be lifted.

The labor market is recovering much faster than expected. The number of jobs in October was higher than the level before the lockdown measures took effect in June, and companies complained that there were not enough workers.

In November alone, job advertisements soared by 7.4%, reaching the highest level in 13 years.

As consumers got rid of the blockade, retail sales have soared, and after months of being forced to frugal, there are many things to consume.

CBA chief economist Stephen Halmarick estimates that approximately A$240 billion in excess savings was accumulated during the lockdown period, which indicates the peak Christmas shopping season.

Using electronic card sales data and Google (NASDAQ:) search terms, CBA estimates that household spending intentions in November will increase by 2.1% from the previous month to regain all lost ground since the pandemic began.

Soaring house prices have increased potential spending power, and the Australian Bureau of Statistics estimates that in the six months to September, house prices have increased by A$1 trillion.

($1 = 1.4198 Australian dollars)

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