MNI RBA Review - November 2021: YCT Dropped, Ambiguous Guidance Employed, Patience Stressed

EXECUTIVE SUMMARY

• The RBA scrapped the yield target on ACGB Apr-24, as was expected, given its inaction when it came to defending the 0.10% target and the subsequent yield surge witnessed through the latter half of last week.
• Elsewhere, the Bank chose to deploy a deliberately ambiguous round of forward guidance when it came to the cash rate, removing direct reference re: conditions likely being met for a rate hike in '24, noting that "the Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. This will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently. This is likely to take some time. The Board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 2.5% at the end of 2023 and for only a gradual increase in wages growth.
• Wage growth remains paramount when it comes to the medium term inflationary dynamic, at least in the Bank's eyes. 3.0% wage growth seems to be the magic number for the board (which the Bank expects to achieve in '23), while sustained realised underlying inflation above 2.5% seems to be the ultimate objective when it comes to lift off. Lowe's post meeting address highlighted several reasons why both Australian inflation and wages are subjected to different realities than the global norm, pointing to a slower upward trajectory than has been observed elsewhere, subliminally affirming the patient mantra expressed in the fresh forward guidance.