MNI STATE OF PLAY: RBA Focus on Guidance As Jobs Improve

The Reserve Bank of Australia could start discussions on when to amend their current forward guidance as early as Tuesday's meeting, as policymakers may look a jobs to take advantage of a jobs recovery that appears to be ahead of schedule.

No change is expected in the overall policy settings, with the benchmark cash rate seen unchanged at 0.1%, the target maintained on the three-year government bond yield at the same level of 0.1% and the scale of QE also carried over at the levels previously laid out.

The key weapon in the bank's current armoury is its yield curve control program, which targets a level of 0.1% on three year bonds, the same as the overnight cash rate.

The RBA is currently centred on the bond maturing in April 2024, which effectively functions as a form of forward guidance given the bank's ongoing pledge not to raise interest rates until 2024 "at the earliest."

Policymakers could decide to extend the yield curve program to the next series, maturing in November 2024, giving a strong signal on its outlook. A decision and an announcement on this could be made this week.

EMPLOYMENT RECOVERY

The RBA has said that it won't raise rates from the current historic low until the labour market tightens, wages grow and inflation moves sustainably into the 2 to 3% target range.

Board member Ian Harper was upbeat on the outlook for the jobs market in a recent MNI interview.

Inflation is currently at an annualised 0.9% and while unemployment came down to 5.8% in February it could move higher with the expiry of the Government's Jobkeeper program, which kept one million workers employed.

The RBA could announce changes to its AUD200 billion program of Quantitative Easing buying longer dated Government bonds, although this is considered unlikely, as is any change to the bank's Term Funding Facility that currently offers funding at 0.10% to commercial banks.