RBA’s biggest COVID challenge lies ahead

January 5, 2021
RBA’s biggest COVID challenge lies ahead

After almost a year of fighting the heavy damage inflicted by the worst economic crisis since the Great Depression, the RBA now has to grapple with managing the recovery.

The Reserve Bank of Australia (RBA) acted swiftly when COVID-19 hit to keep markets functioning and finance flowing for consumers, businesses and the government.

A head-spinning change of heart on quantitative easing saw Lowe nail short-term interest rates to the floor in March with a three-year yield target.

Eight months later, the RBA turned to the rest of the yield curve, aggressively buying five and 10-year state and Commonwealth government bonds as part of a pledge to snap up $100 billion in just six months.

The economy has already started to pick up, with unemployment falling to 6.8 per cent in November, and GDP rebounding 3.3 per cent in the September quarter.

House prices are set to increase in 2021, with many economists in The Australian Financial Review’s survey forecasting price rises of 10 per cent or more.

Tim Toohey at Yarra Capital Management is one: “We think [house] price rises of close to 10 per cent are likely in 2021, particularly in an environment where both fiscal and monetary policy are being deliberately calibrated to be slow to adjust to the economic cycle.”

Read more…. (subscription to The Australian Financial Review required)