* RBA considered delaying tapering to A$4 bln/wk from Sept * Situation “under review”, prepared to respond further * Sees GDP growth of 4% in 2021, 4.25% in 2022 and 2.5% in 2023 * Inflation still undershooting target through end-2022 * (Adds bullets, recasts with Lowe comment, adds RBA quarterly forecasts) SYDNEY, Aug 6 (Reuters) - Australia’s central bank board considered delaying tapering its bond purchases from next month but decided against it, saying fiscal stimulus was a “more appropriate” tool to deal with virus lockdowns, Governor Philip Lowe said on Friday. Earlier this week, the RBA surprised markets by standing its ground on a decision to taper its bond buying programme from September, expecting the hit to the economy from the Delta variant of the coronavirus to be temporary. In his opening remarks to a parliamentary economics committee on Friday, Lowe said the RBA Board did consider the case for delaying the tapering to A$4 billion per week from next month from A$5 billion now. “The critical issue here is the outlook for the economy... We are expecting a return to strong growth next year,” Lowe said on a video call from Sydney, underlining for the first time why the bank decided against delaying tapering. “Any additional bond purchases would have their maximum effect at that time and only a very small effect right now when the extra support is needed most,” Lowe added. “The Board also recognised that fiscal policy is the more appropriate instrument for providing support in response to a temporary and localised hit to income.” Lowe said the RBA was prepared to act if the economic outlook deteriorates from here. The RBA has kept its cash rate at a record low 0.1% after last easing in November and on Friday Lowe reiterated the condition for an increase in the rate is not expected to be met before 2024, given inflation is seen undershooting its 2-3% target band for years to come. Australia’s A$2 trillion ($1.5 trillion) economy came out strongly from its once-in-a-generation recession last year thanks to strong monetary and fiscal support but downside risks have increased with Sydney in a prolonged lockdown. Strict stay-home orders are also in play in other major Australian cities, including Brisbane and Melbourne. Responding to questions from lawmakers, Lowe said Australia’s gross domestic product (GDP) would shrink this quarter though two back-to-back quarters of contraction were unlikely. “My hopes are that restrictions are being eased later this quarter and into next quarter and as restrictions are eased the economy should start recovering,” Lowe said. “So we can’t rule out two quarters of negative GDP if the health situation deteriorates but I think it’s quite unlikely at this stage.” The RBA also published its quarterly forecast on Friday, predicting a 4% annual growth this year, followed by 4.25% next year and 2.5% in 2023. The unemployment rate is seen dropping to 4.25% next year and 4% by end-2023 from around 5% now. Still, inflation is seen below the RBA’s 2-3% target band until mid-2023 before inching up to 2.25% by end-2023. “We want to see results on inflation before we move,” Lowe told lawmakers. “It will not be enough for inflation to just sneak across the 2% line for a quarter or two. We want to see inflation well within the target band and be confident that it will stay there.” Until that happens, the cash rate will remain at 0.1%, Lowe said. (Reporting by Swati Pandey and Wayne Cole; Editing by Sam Holmes & Shri Navaratnam)