RBA Lowe: Made No Decision Yet On Shifting 3-Yr Target To Nov 2024 Bond
- Published on
- 03 Feb 2021, 12:43 PM
RBA Lowe: Made No Decision Yet On Shifting 3-Yr Target To Nov 2024 Bond
--Will Pay Close Attention To Econ Data, Infla, Jobs Outlook To Decide If To Shift
--No Cash Rate Hike Before 2024, Possible It Will Be Later Than This
--3-Yr Yld Target Anchored Yld Curve, Reinforced Forward Guidance
--Very Significant Monetary Support Need To Be Maintained For Some Time To Come
--Premature To Be Considering Withdrawal Of Monetary Stimulus
--Would Extend TFF Drawdown Date If Funding, Credit Conditions Worsen
--At The Moment No Sign Of Worsening Funding, Credit Conditions
--Noted Most Other Central Banks Extended QE Atleast Until End Of This Year
--“Unwelcome Upward Pressure” On AUD Would Have Happened If QE Ended In April
--Evidence Shows QE Extension Would Not Lead To Market Dysfunction
--RBA Remains “Well Short” Of Inflation, Jobs Goals
--Easy MonPol Have Resulted In Lower AUD Than Otherwise
--Watching Household Spending, Private Non-Mining Investment Carefully
--Higher Housing Prices Support Spending, House-Building
--Will Be Concerned If Lending Standard Deteriorate; Few Signs Of This Now
--Path Ahead Likely To Be Bumpy And Uneven
By Sophia Rodrigues
The Reserve Bank of Australia has not yet made the decision to shift the focus of the three-year yield target to November 2024 bond from April 2024, and will take economic data and outlook for inflation and jobs before making that decision later in the year.
The RBA also does not expect to raise the cash rate before 2024, and thinks there’s a possibility it would be later than that.
Governor Philip Lowe made the comments in a speech titled, “The Year Ahead.” He delivered the speech at the National Press Club of Australia conference in Canberra on Wednesday.
Lowe’s core message from the speech was that interest rates are going to be low for quite a while yet, and “very significant” monetary support will need to be maintained for some time to come.
The message is unchanged from November when the RBA announced a few measures to ease monetary policy further, and importantly, remains the same despite upgrade to growth and employment forecasts in the upcoming Statement on Monetary Policy.
“It is going to be some years before the goals for inflation and unemployment are achieved. So, it is premature to be considering withdrawal of the monetary stimulus,” Lowe said.
On Tuesday, the RBA left its monetary policy settings unchanged at the first board meeting of the year but surprised with an earlier-than-expected announcement on extension to the Quantitative Easing program. The RBA will do an additional A$100 billion once the current program ends in mid-April.
Lowe said the RBA’s 3-year yield target has helped anchor the yield curve and reinforced forward guidance regarding the cash rate. He added that later in the year the RBA will need to consider whether to shift the focus of the yield target to November 2024 bond from April 2024, and at this point it hasn’t made any decision.
The decision will be based on the flow of economic data and the outlooks for inflation and jobs, Lowe said.
The RBA will maintain the final drawdown date of end-June for the Term Funding Facility. It would consider extending the facility if there were a marked deterioration in funding and credit conditions in the Australian financial system.
“At the moment, there are no signs of this,” Lowe said.
Lowe said the economy has bounced back earlier than expected from the pandemic shock but the path ahead is still likely to be bumpy and uneven.
In the year ahead two pieces of economic information will guide the RBA’s outlook. One is household spending and the other is private non-mining business investment.
On household spending the RBA sees risks to the forecasts in both directions but Lowe also pointed to the importance of housing market for spending decision.
He noted the dynamics in the housing market now look to be in a different phase, with prices rising across most of the country recently.
“It remains to be seen how long this will continue, but sustainable increases in asset prices support household balance sheets and encourage spending through positive wealth effects. Higher housing prices can also encourage additional residential construction,” Lowe said.
The RBA would be concerned if lending standards worsen as housing prices rise further but there were few signs of this at the moment, he added.
Private business investment is needed to support the economic recovery and to build the productive capital stock needed for the future, Lowe said.
--Contact: Sophia@centralbankintel.com