Insight: RBA Open to Multiple Yield Targeting But Not at This Stage

By Sophia Rodrigues

The Reserve Bank of Australia recognizes it might have to do multiple yield targeting with large-scale asset purchases at some stage but at this time it is focused on the effect of the strong monetary and fiscal easing that’s already being delivered.

A lack of any hint of further easing is therefore not a hint the RBA is not entertaining the idea of more monetary easing. And neither should the absence of reference to the Australian dollar in the cash rate statement be taken to mean it is comfortable with the current levels.

Currently, the RBA’s top focus is the labor market, with the 9% fall in hours worked and the 600,000 fall in employed its main concerns. Such sharp contraction being experienced by the economy can only be supported by fiscal stimulus and monetary easing which has already been delivered or is ongoing.

With monetary and fiscal support in place, the RBA is watching the lifting of coronavirus restrictions and is alert to the risk of possible renewed outbreaks. More importantly, the RBA is monitoring data closely to see the impact of coronavirus on consumer psychology and their spending behaviors.

While the RBA is focused on all this, it does not see the need to comment on the housing market or the exchange rate or even China.

The housing market has slowed but it is running on its own dynamics now, meaning monetary policy can do little at this time. The exchange rate is not seen as a big driver for the economy currently and China is captured within the comments on the global economy.

At the same time, the government bond market is operating effectively, three-yield government bonds yields are around the target and the government’s borrowing is generating good demand.

None of these require any intervention at this stage but this could change, if and when, the RBA judges the economy needs more easing.

Such an easing would come through extension of yield target towards the longer-end like the 10-year government bond, along with more asset purchases.

--Contact: Sophia@centralbankintel.com