RBA says economy and markets key to July call on bond programs
The Reserve Bank of Australia has said it will pay “close attention” to economic data and financial market conditions when it decides to extend its target maturity date and undertake further quantitative easing.
The RBA is to call at its July 6 meeting on whether to move the three-year yield target to the November 2024 bond from the current April 2024 stock. The result could give a glimpse of when where the first interest rate hike will occur. The central bank will also announce any plans to buy longer-term bonds, with the current A $ 100 billion ($ 80 billion) tranche expiring in September.
“The board remained open to undertaking further bond purchases if it could help progress towards the bank’s full employment and inflation targets, ”he said in the May meeting minutes released on Tuesday. “Future policy decisions would be based on careful attention to the flow of economic data and financial market conditions in Australia.”
The RBA is aiming to bring unemployment down to 4% as it tries to boost wage growth and bring inflation down to the 2-3% target. Australia’s economy has recovered much faster than expected and the unemployment rate is currently 5.6%, after falling almost 2 percentage points from the middle of last year.
The bank is not sure exactly how prices will react during the recovery, given that they had been stifled for an extended period, while at the same time the global economy rebounded rapidly.
“Rising prices for basic commodities and other inputs are expected to contribute to higher inflation around the world in the coming months, and members Noted that inflation expectations in advanced economies had also increased to move closer to central bank targets, ”the RBA said.
The bank has sought to give itself more political flexibility by focusing on higher wages to fuel consumer price growth. He cited the emphasis on cost control by companies and public sector policies on wage gains as potential headwinds.
The Aussie remained close to its daily high after the minutes were released, rising 0.3% to 77.88 cents US. 10-year bond yields eased slightly, rising 4 basis points to 1.79%. The April and November 2024 bond yields were 0.1% and 0.31% respectively.
The RBA in its minutes reiterated that wage growth should be “lastingly above 3%, which is well above its current level”.
The RBA’s key rate is currently 0.10%, the same level as its three-year yield target, which acts as forward guidance. The bank reiterated in the minutes that it is “unlikely” that the conditions for an increase in borrowing costs will be met until 2024 at the earliest. The board also agreed that the July meeting would not need to consider a change to the 10 basis point target.
At the same time, the central bank Noted that the yields of the other three-year instruments “had increased since the start of 2021 and were consistent with market participants who expected the spot rate to start rising from its current level in 2023”.