MNI INSIGHT: RBA Nears Debate On Trimming Guidance Period

With signs of gathering economic recovery, the Reserve Bank of Australia could start a discussion on whether to effectively trim its guidance period for very low interest rates as soon as the April meeting, MNI understands.

The RBA's yield control programme aims to keep 3-year bond yields at 0.10%, setting expectations for the record-low overnight cash rate at the same level, and it must decide whether to shift its focus from Australia's April 2024 bond to November 2024 debt. The alternative would be to reduce the guidance period as the economy strengthens.

But, while strong signs of recovery are appearing, MNI understands the central bank is still unconvinced unemployment can come down sufficiently to drive wages growth and inflation into the 2 to 3% target range under three years, regardless of current bond yields and market inflation expectations.

JOBS OUTLOOK

February's unemployment level fell to an encouraging 5.8%, but the RBA is also watching this month's the expiry of the government's AUD90 billion Jobkeeper program, which has supported one million workers through the pandemic.

The end of Jobkeeper is widely expected to nudge unemployment higher, but less apparent to policymakers is the pace at which those lost jobs can be recovered.

The RBA will also likely be keeping an eye on the action of other global central banks before acting aggressively, aware any step out of synch will push the Aussie dollar higher. To the relief to policymakers, this has come back from recent highs to around US76 cents.