The Reserve Bank of Australia trims bond-buying but extends the program to February

The Reserve Bank of Australia kept interest rates at a record low in its September policy meeting as widely expected and also extended asset purchases to at least mid-February 2022 but surprised by reducing its bond-buying by A$1 billion to A$4 billion a week.

Economists saw the tone from the central bank as overall dovish, although the RBA confirmed plans to further trim its massive bond-buying program, once the accelerated vaccination eases the grip of Covid-19 lockdowns and boosts economic recovery.

The Delta variant outbreak caused lockdowns in Sydney, Melbourne and Canberra, which is likely to cause significant economic contraction in the third quarter, but RBA policymakers remain optimistic and expect that fresh restrictions would delay but not derail economic recovery.

The government plans to start easing restrictions once 70% of adult population are immunized and to fully lift the lockdowns when the number of vaccinated people reaches 80%, with these targets expected to be reached in October and November respectively.

The policymakers are expected to continue to review asset purchase program, according to economic conditions and health situation, while RBA is very unlikely to start hiking rates until 2024, when they expect inflation and wage growth to reach their targets.