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Attention Is On Resistance


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MNI INSIGHT: Better Data Pushes Back RBA Yield Control Move


The RBA feels it can wait before deciding whether to extend yield control guidance to bonds maturing in November 2024.

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A strengthening economy will allow the Reserve Bank of Australia to wait until July or even August to decide whether to effectively extend its low-interest rate guidance by moving its yield-control target to government bonds maturing in November 2024, MNI understands.

Poor data in recent weeks might have prompted the RBA to take an earlier decision on extending the target, which currently applies to bonds coming due in April 2024, but officials now feel able to wait and see.

Last week's labour market data -- published after the RBA's April meeting referenced in the minutes published Tuesday -- showed a fall in unemployment to 5.6% in March as participation rose and were received positively by policymakers, who do not expect labour market health to be significantly harmed by the recent expiry of the government's Jobseeker scheme, MNI understands.


The RBA has previously indicated it sees full employment as being in the mid-4% to 5% range, and forecasts joblessness at 6% by the end of the year. It wants a tighter labour market and an increase in inflation before any increase in official rates from their record low 0.1%, and the RBA considers that these preconditions should limit the spillover from an eventual tightening of monetary policy into the ebullient housing market.

Household balance sheets are also benefitting from the surge in house prices, which jumped 4.1% in the first quarter to a new historic high. Only 1.25% of mortgage holders now face negative equity, less than half the rate of 12 months ago, according to the RBA, and borrowers have paid down debt and stockpiled savings.

While the RBA is keeping an eye on any financial stability risks from housing, it is confident improvements in capital ratios and lending standards since the 2008-09 financial crisis have strengthened lenders. Mortgages can now be had for less than 2%, but the percentage of riskier investment loans as a total of credit growth, though rising, remains modest in the central bank's view