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RBA: VIEW: RBC note that "while it was not especially surprising that the Gov.
refused to put a level/number that would prompt buying, we were a little puzzled
by the answer that its action for YCC would also be a function of market
conditions. We think this muddies the YCC/0.25% target on 3y yields... The 0.25%
target is clear and central to the set of unconventional measures. 3y yields
tested just above 0.28% last week, prompting some discussion of where the line
in the sand is for this very clear objective of monetary policy. The Governor's
suggestion that market functioning is also a key consideration waters down the
target in our view. If 3y yields grind higher in an orderly fashion to well
above 0.25% (e.g., 0.30-0.35%), does that mean the RBA will not step up and buy
to ensure the nominated target, with implications for broader borrowing costs
and the transmission through to the real economy? We suspect not, but the
discussion today has added some confusion to this aspect of the RBA's
unconventional monetary policy measures and may well raise some questions around
the credibility of YCC. It will be interesting to see whether the bond market
tries to test the RBA's resolve at some point."
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |

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