Retains Optionality, Affirms Commitment To 3-Year Yield Target

The RBA has affirmed its commitment to the 3-Year yield target noting that "the Bank remains committed to the 3-year yield target and recently purchased bonds to support the target and will continue to do so as necessary. Also, bond purchases under the bond purchase program were brought forward this week to assist with the smooth functioning of the market. The Bank is prepared to make further adjustments to its purchases in response to market conditions." It affirmed this stance, as it added a passage to its concluding paragraph noting that "the Board remains committed to maintaining highly supportive monetary conditions until its goals are achieved." This statement appeared elsewhere in the February statement, not within the concluding paragraph.

• In terms of the drivers of the recent ACGB cheapening the RBA noted that "the positive news on vaccines together with the prospect of further significant fiscal stimulus in the United States has seen longer-term bond yields increase considerably over the past month. This increase partly reflects a lift in expected inflation over the medium term to rates that are closer to central banks' targets. Reflecting these global developments, there have been similar movements in Australian bond markets. Changes in bond yields globally have been associated with volatility in some other asset prices, including foreign exchange rates."
• There was no reference to the possible extension of the Bank's 3-Year yield targeting mechanism's focus to the ACGB Nov '24, which was in line with our expectations, although some had suggested that there was non-negligible chance of such a move.
• All in all, the Bank has looked to maintain as much optionality as it can as it moves forwards, whilst adopting marginally more forceful rhetoric re: its bond purchases.