VIEW: RBC: Smart Move, RBA Turning More Flexible On Unconventional Policy

RBC note that "today's actions suggest that the RBA is adopting a more flexible approach to unconventional policy which we would commend. Amid the global rise in yields, with Australian bonds a notable underperformer recently, adjusting its two key tools broadly within the existing framework makes sense - larger YCC operations including on non-QE days where necessary and the front-loading of QE while skewing its purchases accordingly to where there is most stress/bonds are the cheapest. It is bolder, more decisive action which is needed at a time when markets are testing the RBA's resolve, with the RBA needing to move back on the front foot. And, while it may be some ways off, introducing flexibility in weekly purchases may well be helpful for eventual taper/exit. We would expect the RBA tomorrow to add a firmer commitment in its post board meeting statement noting that it "will act to ensure its YCC target is met" and "key borrowing rates stay low." Indeed, it may even add that it will "adjust purchases accordingly.""