MNI STATE OF PLAY: RBA Holds Rates But More QE Possible

The Reserve Bank of Australia said it is prepared to "adjust" its bond purchases in response to market conditions as it reaffirmed its policy settings and left its yield curve target unchanged and focused on three-year government bonds, signalling continued support for the economy.

The RBA has responded to bond market turbulence over the last week by buying more bonds to defend its yield target of 0.10% and has brought forward the purchase of longer dated bonds under its program of Quantitative Easing to "assist the smooth functioning of the market."

The central bank has so far purchased AUD74 billion in longer-dated bonds under its first QE program, which ends in April, and has committed another AUD100 billion to a second program which will run to September.

RECORD LOW RATES

The RBA kept official interest rates unchanged at a record low of 0.10% on Tuesday and said there would be no change until inflation - currently at 0.9% - was within the 2% to 3% target range and wage growth was evident.

"The Board does not expect these conditions to be met until 2024 at the earliest," RBA Governor Philip Lowe said.

The bond buying program and the Term Funding Facility offering cheap funding to commercial banks have increased the RBA's balance sheet by around AUD175 billion since the beginning of 2020.