MNI: RBA Board Discusses QT, Holds Firm - Minutes

The Reserve Bank of Australia board maintained its stance on the reduction of its legacy government bond portfolio and will continue to hold until maturity, according to the minutes from the December meeting released Tuesday.

“This approach recognised, among other considerations, that the Bank’s balance sheet was already set to decline rapidly as loans under the Term Funding Facility matured,” the board noted. Members decided the approach remained appropriate, but agreed to keep it under active consideration, due to interest rate risk and "given the relatively gradual decline in the Bank’s portfolio of bonds compared with some other advanced economy central banks.”

The board also discussed the appropriateness of selling its portfolio to the Australian Office of Financial Management or the market.

The RBA bought about AUD300 billion in Australian government commonwealth bonds, or about 35% of total outstanding paper, after abandoning a yield target for three-year ACGBs in November 2021. The bank recorded a AUD12.4 billion net-equity loss in its last annual report and the Reserve does not expect to pay a dividend for some years.

MONETARY POLICY

The RBA board noted elevated rental costs will continue to feed inflation into 2024, while wages growth will ease despite recent strong growth.

"Members observed that labour market conditions remained tight, but less so than earlier in the year, as the demand for labour had adjusted to slower economic growth and labour supply had increased," the board stated. "Employment growth had eased to be a little below the rate of growth in the working-age population over the preceding few months, with the unemployment rate drifting up to 3.7%."

The board decided to hold the cash rate at 4.35% on Dec 5. (See MNI RBA WATCH: Market Downgrades Further Hikes After Hold) It will meet again between Feb 5-6.