RBA: Flexible on QE programme, steady on rates – UOB

Economist at UOB Group Lee Sue Ann reviews the latest RBA event.

Key Quotes

“At its July meeting, the Reserve Bank of Australia (RBA) decided to: retain the April 2024 bond as the bond for the yield target and retain the target of 10bps; continue purchasing government bonds after the completion of the current bond purchase program in early September. But these purchases will be at the rate of AUD4bn a week until at least mid November (from AUD5bn a week); maintain the cash rate target at 10bps and the interest rate on Exchange Settlement balances of zero per cent.”

“In recent months, the RBA has been very clear with its message that it is not in any hurry to withdraw stimulus from the economy, even though some aspects of the recovery have been stronger-than-expected. Indeed, Lowe reiterated that he expected the jobless rate would need to be close to 4% for an extended period to spur wages growth to the desired rate of above 3%.”

“We remain of the view that the RBA’s conditions for rate hikes are unlikely to be met until at least late 2023. The April 2024 bond was retained as the target bond for the yield curve control program. While not our base case, the yield target can be revisited over time should the economy and outlook change. Bond purchases will continue until mid-November, and will be subject to review at the November board meeting. Clearly, the RBA has decided to take a more flexible approach to its bond buying program than we have seen in the past (in place of announcing a specific target program such as the two previous AUD100bn programs), which allows for a nearterm adjustment at the November meeting. We expect its QE program to be extended again in November, with a further reduction in the pace of purchases likely.”

“Meanwhile, the Term Funding Facility (TFF) has now closed, with AUD188bn of lowcost fixed-rate funding provided to the banking system. With the TFF closed, lenders are likely to return to wholesale markets to fund new lending flows and begin to access replacement funding ahead of TFF maturities.”