Australia Westpac-MI leading index dropped from 1.36% to 1.30% in July. The index is still consistent with above trend growth over the next 3 to 9 months. Nevertheless, Westpac also said, “no Leading Index can accurately predict the impact of sudden virus lockdowns, although the direct effects of measures will start to become more apparent in the August Index.”

Also, with the deteriorating outlook in New South Wales and Melbourne due to lockdowns, West pact has revised down Q3 GDP forecast to a contraction of -2.6%, to be followed by 2.6% growth in Q4, and very strong growth of 5.0% in 2022.

Westpac added that RBA would likely to “take the same approach” as August in September meeting. That is, there would be no response to the current lockdown risks. However, it added, “we certainly cannot rule out a policy change in September especially if, as we assess, developments have raised some questions as to the vulnerability and timing of the expected recovery.

Full release here.

In the minutes of August 3 meeting, RBA said recent outbreaks of the Delta variant of had “interrupted the recovery”. But the economy entered lockdowns with “more momentum than previously expected”, with fiscal and monetary support already cushion the economic effects. It added, “experience to date had been that, once virus outbreaks were contained, the economy bounced back quickly.” The “central scenario” was still for the economy to “growth strongly again next year”.

Committee members considered the case to delay tapering of asset purchases to AUD 4B a week scheduled for September. But they noted that additional bond purchases would only have a “marginal effect” at present”, but “maximum effect” during the resumption of strong growth in 2022. Also fiscal policy is recognized as a “more appropriate instrument” in response to a “temporary, localized reduction in incomes”. Thus, the Board reaffirmed the previously announced schedule for tapering.

RBA also reiterated that the condition for raising interest rate is not expected to be met before 2024. “Meeting this condition will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently,” it said.

Full minutes here.