RBA sold the message that it was winding things back. But there’s something they weren’t saying.
So has the FREE MONEY era come to an end?
The RBA left rates unchanged at its meeting last week, but did announce that it was tapering the pace of it’s money printing back, from $5bn a week, down to $4bn a week.
It was testing the waters. Markets took it as a sign that the RBA was ready to unwind it’s MASSIVE MONEY PRINTING PROGRAM.
That’s how they sold it
The Reserve Bank has taken a first baby step towards unwinding its extraordinary $237 billion monetary stimulus, but signalled it will lag other central banks in lifting rates and a move remains unlikely before 2024.
The RBA kept the cash rate at a record low 0.1 per cent at its board meeting on Tuesday, but announced a move to a “flexible”, scaled-back bond-buying program to reflect the growing strength of the economic recovery.
At the end of the current 12-month $200 billion bond buy-up which ends in September, the RBA will transition to more flexible quantitative easing of $4 billion per week, down from $5 billion, which will be reviewed in November.
Dr Lowe said the move was in response to an improved outlook for the economy but emphasised the lower rate did not “represent a withdrawal of support” and the bank would keep buying bonds until there was material progress towards its employment and inflation targets.
“Because the inflation and wage outcomes have been lower than other places, we’re going to keep stimulus going probably longer than other countries,” he said.
More importantly for home owners, Lowe remains of the view the first rise in the 0.1 per cent overnight cash rate won’t happen until 2024 – despite markets pricing in a late 2022 or early 2023 rate increase.
But the devil is always in the detail.
And what’s the detail?
First, they’re moving from to a ‘state-dependent’ regime. That is, they’re no longer putting a time limit on the money printing. They’re going to wait until they get the ‘states’ they want – namely, when inflation is up and unemployment is down.
Second, they’re much more clear about what those states actually look like. They want wages growing above three percent, inflation above two percent, and unemployment below 5 percent.
So while it looks like a taper, the old regime was set to end in November. It could now run much longer than that, and therefore end up pumping much more money into the system in total, even if it’s coming at a slightly slower pace.
And they’re promising to keep printing until they get the outcomes they want.
And that means that this is still an incredibly radical monetary experiment.
I mean, if I said to you that the RBA was going to print $4bn a month until wages were growing at 3-4%, no one would have believed me.
And if they did?
… they would have bought property. As much as they could get their hands on.