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- The RBA surprised at last month's policy decision by announcing a resumption of QE purchases, after three months off. 3Y bond yields had been deviating marginally, but consistently, from the target, and bad news on the virus and economic outcomes in Melbourne was enough to see the Board take action. Previously, decisions on QE purchase activity were made outside of policy meetings, and seemed to be in the domain of the markets team. In our view last month's decision to resume purchases was instructive, in that it shows that the Board views delivery on the 3Y yield target as an essential component of the monetary policy stance, and market dysfunction is not required to warrant action.
- We similarly view future easing as more likely to come via use of the balance sheet (i.e., increases in QE pace/quantity) first, rather than changes to yield targets. The cash rate target, 3Y yield target, repo rate, and IOER have all been pegged at levels that incentivize the market to enforce lower yields further out the curve. These rates should therefore be viewed as a package - there is not much point changing one, without changing all. We don't expect any new actions from this meeting, with most of the commentary dedicated to an assessment of how the recovery is tracking in the midst of a second-wave outbreak.