RBA Gov Lowe: Committed To 3-Yr Yld Target; Cash Rate Very Likely At 0.1% Until At Least 2024
- Published on
- 10 Mar 2021, 09:04 AM
From Governor Philip Lowe’s speech Wednesday:
--Remains committed to 0.1% three-year yield target
--Not considering removing 3-yr target or changing from 10bps
--Discussed whether to keep April 2024 target or move to Nov 2024, will discuss again later in year
--Could keep April 2024 as target bond until it finally matures
--Cash rate very likely to remain at 0.1% until at least 2024
--Rise in bond yields reflects lift in inflation expectations, early rate rises
--Not sharing market expectations of cash rate hike next year, 2023
--Still long way away from full employment
(Sydney, March 10, 2021) -- The Reserve Bank of Australia remains committed to the three-year yield target and is not considering removing the target or changing it from 10bps, Governor Philip Lowe said Wednesday.
The RBA is also not sharing market expectation that the cash rate might be raised as early as late next year and then again in 2023, Lowe said.
Lowe made the comments in a speech titled, “The recovery, investment and monetary policy,” that he delivered at the Australian Financial Review business summit in Sydney.
The RBA is committed to the three-year yield target because its judgement is that the condition for an increase in the cash rate is unlikely to be met before 2024.
However, the RBA board has discussed the question of whether to keep the April 2024 bond as the target bond or to move to the next bond which is the November 2024, later this year.
Lowe implied one option for the RBA is to keep the April 2024 bond as the target bond and let it finally mature in April 2024. But a decision on this has not been made yet and will be considered again later in the year when there is more information about the economic recovery and the labor market.
“If we were to keep the April 2024 bond as the target bond, the maturity of the yield target would gradually decline as time passes until the bond finally matures in April 2024,” Lowe said.
The RBA will also consider later in the year the case for further extending the bond purchase program and until then it remains prepared to later the timing of current programs in response to market conditions, Lowe said.
“We are prepared to undertake further bond purchases if that is required to reach our goals. Until then, we remain prepared to alter the timing of purchases under the current programs in response to market conditions,” he said.
“We did this last week when liquidity conditions deteriorated and bid-ask spreads widened noticeably, and will do so again if necessary,” he added.
Lowe used the speech to dismiss market expectation of a cash rate hike prior to 2024.
“Over the past couple of weeks market pricing has implied an expectation of possible increases in the cash rate as early as late next year and then again in 2023. This is not an expectation that we share,” he said.
The RBA’s assessment is the cash rate is “very likely” to remain at its current level until at least 2024. This is because the wages growth is unlikely to be rise enough to be consistent with the inflation target before 2024.
The RBA is committed to achieving full employment and thinks the economy can achieve and sustain an unemployment rate in the low 4s.
“As we progress towards full employment, we will be relying on the wages and prices data to provide a signal as to how close we are. The current signal is that we are still a long way away from full employment,” Lowe said.
Commenting on the move higher in bond yields since November, Lowe said it mainly reflects a lift in investors’ expectation of future inflation but there has also been some bring forward in the expected timing of future policy rate increases.
--Contact: sophia@centralbankintel.com