MNI STATE OF PLAY: RBA Waiting Game Should Continue This Week

The Reserve Bank of Australia meets Tuesday with little to no policy action expected after the bank said at its previous meeting key decisions on its bond buying program and forward guidance would be addressed in July.

Policymakers said they would wait until the first meeting of the second half of the year to consider whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity, the November 2024 bond.

The July meeting will also be the time to consider future bond purchases following the September completion of the second AUD100 billion of purchases under the AUD200 billion government bond purchase program.

With interest rates expected to remain at 0,10%, a record low, the RBA continues to be in a holding pattern as it waits for more evidence on the strength of the domestic recovery.

Unemployment and inflation are the key factors in determining any change in monetary policy, and while the signs are encouraging the RBA has said that conditions for an interest rate rise are "unlikely until 2024 at the earliest."

ECONOMY

While Australia has managed to contain the spread of COVID-19, a new outbreak in Melbourne has seen a third lockdown in Australia's second largest city and may stall a full economic recovery.

April unemployment figures released last week show a slight fall to 5.6%, but more than 30,000 jobs were lost as the participation rate fell. Inflation continues to flag below the RBA's 2% to 3% inflation target, with first quarter inflation at 1.1% despite a hike in fuel prices.

While expecting a spike in inflation this quarter, the RBA is not forecasting that it will return to the target range until June 2023.

The RBA'S policy decision and statement will be published at 0430GMT Tuesday June 1.