MNI STATE OF PLAY: RBA Awaits Recovery Signs Before Next Move

The Reserve Bank of Australia is upbeat about the economic outlook but policymakers will give themselves more time to consider the recovery and the ongoing global pandemic before making decisions on forward guidance on policy.

A key consideration for the RBA is a decision on whether to extend its yield control program, which currently targets three-year government bonds maturing in April 2024, but Governor Philip Lowe said Tuesday this will be considered "later in the year."

Extending the target to bonds maturing in November 2024 would be a sign that the RBA outlook continues to be dovish in its outlook, pushing the forecast timing of a first rate hike further into the future.

All policy settings were unchanged, with the benchmark overnight rate and the yield target for the benchmark 3-year government bond at 0.1%, the size of the QE programme at AUD200 billion and the ongoing lending schemes at current levels.

The RBA latest policy statement reiterated that it does not expect to consider any rise in rates until "2024 at the earliest," when it expects the labour market to have tightened, wages growth to have gained momentum, and inflation -- currently at 0.9% -- to be sustainably in the bank's 2 to 3% target range.

OUTLOOK

The April outlook, however, was optimistic on the economic recovery, which the RBA said was being supported by the global vaccine rollout.

"While there are still considerable uncertainties surrounding the outlook, the central case has improved," Lowe said.

The RBA is also midway through an AUD200 billion QE programme, buying longer dated Government bonds, with the second AUD100 billion of the plan due to begin next week.

Following Tuesday's meeting, Lowe said the bank remained "prepared to undertake further bond purchases" in order to assist progress towards full inflation and the inflation target.

HOUSING MARKET

Australian commercial banks are also half-way through accessing the RBA's other main stimulus program, access to low cost funding under the Term Funding Facility at the 0.1% official rate. Banks have used AUD95 billion of this facility and have access to another AUD95 billion.

Highlighting the strength of the domestic property market, the RBA said it was largely being driven by first-time buyers, with subdued investor credit growth. However, the bank said it would monitor trends in housing borrowing "carefully and it is important that lending standards are maintained."

The next scheduled meeting for the RBA board to discuss policy settings is May 4.