Reserve Bank flags more optimistic outlook despite lockdowns grounding the aviation sector

The central bank has upgraded its outlook for Australia's economy despite flagging short term uncertainties from impacts caused by the Delta variant which has shutdown two major cities and grounded the aviation sector.

Releasing its monthly monetary statement on Tuesday, the Reserve Bank of Australia upgraded its 2022 outlook, despite flagging the winter lockdown is set to dent gross domestic product for the September quarter.

It also retained its official interest rate position of 0.1 per cent and signalled it would push ahead with tapering its massive $237bn quantitative easing program.

RBA Governor Dr Philip Lowe said the 2022 outlook for economic growth has been boosted from 3.5 per cent to 4 per cent, while unemployment by the end of next calendar is forecast to fall to 4.25 per cent.

Dr Lowe warned the recovery from COVID-19 would remain uncertain while the virus keeps Greater Sydney and now South East Queensland in lockdown.

"The economic outlook for the coming months is uncertain and depends upon the evolution of the health situation and the containment measures," Dr Lowe said in his monthly statement.

"The [RBA] program will continue to be reviewed in light of economic conditions and the health situation, and their implications for the expected progress towards full employment and the inflation target."

ANZ economist David Plank said the decision to retain current settings had taken commentators by surprise.

"We had thought a taper delay was likely to demonstrate that the RBA is prepared to use the flexibility provided by its new approach to quantitative easing," Mr Plank said.

Until early September, the RBA will buy back $5bn in government securities before reducing its weekly bond purchases to $4bn, which are set to cease by mid-November.

The RBA's bond buying regime was brought in during the pandemic as an additional measure to ease liquidity pressures within the financial system.

Dr Lowe also noted unemployment is likely to spike while lockdowns occur.

"Some increase in the unemployment rate is expected in the near term due to the current lockdowns, but most of the adjustment in the labour market is likely to take place through a reduction in hours worked and in participation," he said.

The central bank's tapering of its big monetary support coincides with the nation's major airline flagging domestic borders will likely be affected for at least the next two months.

Qantas confirmed roughly 2500 workers would be stood down while domestic travel remains mostly halted due to lockdowns.

"This is disappointing. This is clearly the last thing we would want to do," Qantas chief executive Alan Joyce said.

"Based on current case numbers, it's reasonable to assume that Sydney's borders will be closed for at least another two months."

The airline's chief executive Alan Joyce confirmed furloughed workers not in NSW would receive $750 a week disaster payments which became available to the sector on Monday.

Deputy Prime Minister Barnaby Joyce flagged the payments would only be available to cabin crew and pilots.

Qantas employees in NSW would be able to access disaster payments through the state government support package.

Picture: Dion Georgopoulos

Picture: Dion Georgopoulos

This story Economy tipped to rebound despite Covid flare-up first appeared on The Canberra Times.


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