RBA left monetary policy unchanged as widely expected. Cash rate and 3-year yield target are held at 0.10%. Parameters of the Term Funding Facility and the government bond purchase program are kept unchanged too. The central bank also keep the pledge to “maintaining highly supportive monetary conditions until its goals are achieved”. The conditions for raising cash rate is not expected to be met “until 2024 at the earliest”.
The bond purchases were “brought forward this week to assist with the smooth functioning of the market”. A cumulative AUD 74B of government bonds has been purchased under the initial AUD 100B program. A further AUD 100B will be purchases after the current program completes. And RBA is “prepared to do more if that is necessary”.
Globally, RBA noted that longer-term bond yields increased “considerably over the past month”. That “partly reflects a lift in expected inflation over the medium term to rates that are closer to central banks’ targets”. The movement in yields have been associated with volatility in other asset prices including foreign exchange rates, Australian Dollar “remains in the upper end of the range of recent years”.
Australian economic recovery is “well under way” and has been “stronger than was earlier expected”. GDP is expected to grow3.5% over both 2021 and 2022. Also GDP is expected to return to its end-2019 level “by the middle of this year”. But wage and prices pressures “subdued” and are expected to “remain so for some years”. CPI is expected to be at 1.25% over 2021 and 1.50% over 2022. CPI inflation is expected to “rise temporarily because of the reversal of some COVID-19-related price reductions.”
