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SYDNEY: Australia’s central bank held rates at near-zero in a widely expected decision on Tuesday but surprised markets by expanding its bond buying programme by another A$100 billion ($76.4 billion) to help strengthen the economic recovery.

At its first policy meeting of the year, the Reserve Bank of Australia (RBA) left its cash rate and the three-year government bond yield target at 0.1% while reiterating its commitment to not tighten policy until actual inflation is within its 2-3% target range.

The pledge to buy more bonds pulled yields on 10-year paper back to 1.115%, having hit a 10-month top of 1.19% early in the session. The Australian dollar eased to $0.7625 from $0.7660 before the statement.

“The Board remains committed to maintaining highly supportive monetary conditions until its goals are achieved,” Governor Philip Lowe said in a short post-meeting statement. “Given the current outlook for inflation and jobs, this is still some way off.”

For the RBA to meet its inflation target, wages growth will have to be “materially higher” than the 1.4% rate currently, he added.

“This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest,” the RBA chief said.

Overall, Lowe sounded optimistic about Australia’s economic recovery as most businesses reopened after the country largely managed to curb the coronavirus pandemic.

The RBA expects Australia’s gross domestic product (GDP) to expand by 3.5% over both 2021 and 2022, with GDP seen returning to its end-2019 level as soon as June.

Even so, the jobless rate is seen hovering around 6% this year. The RBA had earlier said unemployment will have to be under 4.5% for it to generate wage pressures.

Australia’s worst downturn since the Great Depression, rising unemployment and feeble inflation had prompted the RBA to slash the cash rate three times last year while the federal government had joined in by unleashing a A$300 billion fiscal spending plan.

The government began tapering some of the measures since late last year, prompting analysts to welcome the RBA’s strong commitment to accommodative policy.

“Raising rates too soon would doom the Australian economy to the type of mediocre economic figures that were all too common before the COVID-19 crisis began,” said Callam Pickering, economist at global job site Indeed. Lowe, who will give a speech in Canberra on Wednesday, said a near term issue was how households and businesses adjust to the fiscal tapering and to what extent they use their balance sheet to support spending.

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