Australia: No changes from the RBA – UOB

Economist at UOB Group Lee Sue Ann assesses the latest RBA monetary policy meeting.

Key Quotes

“The Reserve Bank of Australia (RBA), as expected, decided to maintain the current policy settings at its April meeting, including the targets of 10 basis points for the cash rate and the yield on the 3-year Australian Government bond, as well as the parameters of the Term Funding Facility and the government bond purchase program. In January, the RBA had surprised financial markets with an announcement that it was extending its QE program by a further AUD100bn.”

“In the months ahead, the RBA is due to decide whether to keep the April 2024 bond as the bank’s Yield Curve Control (YCC) target, or to roll over to the November 2024 maturity. RBA Governor Philip Lowe reiterated … that the board will consider whether to do this later in the year. He also noted that the RBA’s first AUD100bn of longer-dated bond purchases is almost complete and the second program of the same amount will begin next week. In the meantime, the RBA’s rhetoric continues to reinforce our view that it will hold off bringing the policy rate into negative territory. Given the notable lags between economic activity and the labour market, and then from the labour market to inflation; we also believe any tightening in policy will not be warranted for some time, which is in line with the RBA’s own outlook.”

“As such, we continue to expect the cash rate to remain unchanged until 2024 and expect a full AUD100bn extension of QE beyond the second round. That said, we think that YCC may not be extended past the April 2024 bond, with the RBA no longer able to credibly commit to rates staying at 0.1% beyond this point.”