MNI REVIEW: RBA Commits To 3-Year Bond Target, To Buy Bonds

The Reserve Bank of Australia left official interest rates unchanged at a record low 0.25% Tuesday and will continue to target a yield on 0.25% on the benchmark 3-year government bond, but now sees a domestic economic downturn "likely to be both uneven and bumpy" as a result of the fresh pandemic-driven lockdowns in Melbourne.

The Bank today re-affirmed its bond buying program, which has seen it spend AUD50 billion to date to control yields on Government bonds. Policymakers noted that the yield on the 3-year had edged above the target in recent weeks and would move to buy more government bonds from Wednesday to address the issue. Further purchases would be undertaken as necessary, the RBA said

The RBA also confirmed the continuation of the Term Funding Facility which has seen commercial banks draw around AUD$15 billion so far from the AUD90 billion available.

MELBOURNE RISK

According to Tuesday's statement, the RBA said despite the evolving situation in Melbourne, the downturn "is not as severe as earlier expected and a recovery is now underway in most of Australia."

The RBA considered "a range of possibilities" for the economy, with a baseline scenario of unemployment rising to around 10% later this year as a result of anticipated job losses in Victoria. June unemployment was at 7.4%.

The strength of the recovery depended on the progress in containing the virus in the near future, as that would support confidence and spending by households and businesses.

It also looked at both a better- case scenario and a worse-case scenario, saying it will outline further details of all three paths in the Statement on Monetary Policy set to be published on Friday.

The RBA was largely expected to maintain its current policy settings in order to save any ammunition for later in the year, when fiscal stimulus from the Australian Government is scheduled to taper off.