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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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Free AccessRBA Review - August 2020: Exerting Control
MNI Point of View: Exerting Control
- The Reserve Bank of Australia (RBA) met expectations as it left its monetary policy settings unchanged, with the cash rate target held at 0.25%, while the 3-Year yield target for Australian government bonds was held at around 0.25%, alongside an affirmation of the RBA's forward guidance.
- The real surprise came in the form of the Bank noting that it will restart its purchases of Australian Government Securities on Wednesday, with further purchases to be "undertaken as necessary." This indicates that the time that the 3-Year yield spends above target could be as much of a factor as absolute yield levels, at least in the eyes of the Bank. It may also reflect the RBA's desire to manage the yield curve prudently ahead of the 3-Year benchmark bond rolldown in October.
- It is unlikely that Wednesday's operations will be a case of one and done, with the Bank set to observe the digestion and prevailing prices of the ops as it returns to market after a ~3-month hiatus. ACGB April '23 provides an obvious starting point for purchases, while ACGB April '24 may be a tad new for inclusion, unless the RBA has a desire to narrow the spread between the two well ahead of the previously outlined benchmark rolldown.
- It is hard to guide on the size of purchases to expect on Wednesday, but the combination of Australia's fiscal burden, more than ample room to ramp up RBA ownership across all of the ACGBs that it holds (as well as widening the lines that it holds) and the pattern observed in the initial flurry of ACGB purchases (starting at A$5.0bn before being tiered down A$500mn) suggest that the RBA could start with a relatively lumpy round of purchases.
- To sum up, the Bank's latest move proves that it is true to its word i.e. it will do more if required, however, the proximity to its self-imposed lower bound in the cash rate continues to tie the Bank's hands as it looks to fend off the impact of COVID-19.
Click here for the full RBA Review or see attached below
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.