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Economic recap: Week to September 10

The Reserve Bank of Australia (RBA) is concerned but not alarmed at the growing cases of Delta variant infections that's wreaking havoc on the lives and livelihood in Australia's two biggest states - New South Wales (NSW) and Victoria (VIC).

This is underscored by the Australian central bank's decision at its September 7 meeting to "maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances of 0%; maintain the target of 10 basis points for the April 2024 Australian Government bond; purchase government securities at the rate of $4 billion a week and to continue the purchases at this rate until at least mid February 2022."

The third point wrong-footed more than half (62.5%) of economists surveyed by Bloomberg that expected "the Reserve Bank of Australia will defer scaling back quantitative easing".

It's a brave and bold move but all the same, a good one. This is because delaying "taper" would convey a sense of panic from the RBA that, in turn, would set a vicious cycle of weaker consumer confidence and spending, reduced business revenues and profits and therefore, delayed and/or decreased investment in plants, machineries and staffing and so on.

By proceeding as planned, the RBA implies that, "this too shall pass". To wit: "Prior to the Delta outbreak the Australian economy had considerable momentum ... Business investment was picking up and the labour market had strengthened. The unemployment rate had fallen below 5% and job vacancies were at a high level."

"The recovery in the Australian economy has, however, been interrupted by the Delta outbreak and the associated restrictions on activity. GDP is expected to decline materially in the September quarter and the unemployment rate will move higher over coming months.

"This setback to the economic expansion is expected to be only temporary. The Delta outbreak is expected to delay, but not derail, the recovery. As vaccination rates increase further and restrictions are eased, the economy should bounce back. There is, however, uncertainty about the timing and pace of this bounce-back and it is likely to be slower than that earlier in the year. Much will depend on the health situation and the easing of restrictions on activity. In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year."

That's about as clear as any central banker could put it. This is also a clear departure from former US Federal Reserve chair Alan Greenspan's double talk. Recall his words way back when: "I know that you believe you understand what you think I said, but I'm not sure you realize that what you heard is not what I meant."

There's no guessing over the the RBA's statement. It's as transparent as transparent can be.

"The board's decision to extend the bond purchases at $4 billion a week until at least February 2022 reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak. The board will continue to review the bond purchase program in light of economic conditions and the health situation, and their implications for the expected progress towards full employment and the inflation target," it said.

"It will not increase the cash rate until actual inflation is sustainably within the 2 to 3% target range."

Read our full COVID-19 news coverage and analysis here.