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The RBA left all its monetary policy measures unchanged in April. The cash rate target stays at 0.1%. correspondingly, the 3-year Australian Government Bond yield target (yield curve control) and the Term Funding Facility (TFF) interest rate also remain at 0.1%. The size QE purchases is kept at AUD100 until September. We notice a mildly more dovish tone from the members on potential QE expansion. As noted in the statement, they pledged to increase QE if this could “assist with progress towards the goals of full employment and inflation”. With both the unemployment rate and inflation significantly deviated from targets, the chance of QE expansion is high in coming months.
The central bank expected that the domestic recovery would “continue, with above-trend growth this year and next”. It also acknowledged that “household and business balance sheets are in good shape and should continue to support spending”. However, it warned that unemployment “is still too high” and this should sustain subdued wage growth and inflation. On the price level, the members noted that “underlying inflation” should “remain below 2% over the next few years”. Policymakers warned of strong property price. As they noted, “housing credit growth to owner-occupiers has picked up, with strong demand from first-home buyers” and that “investor credit growth remains subdued”. While the members pledged to monitor “trends in housing borrowing carefully”, the focus is on maintaining strong lending standards. Globally, the path of recovery remained “uneven” and “uncertain”
On the monetary policy outlook, the RBA maintained the same forward guidance. It suggested that the cash rate will stay unchanged “until actual inflation is sustainably within the 2 to 3% target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market”. The Board “does not expect these conditions to be met until 2024 at the earliest”. Concerning the YCC operation, the central bank remains “committed to the 3-year government bond yield target of 10 bps. Later in the year it will consider whether to retain the April 2024 bond as the target bond or to shift to the next maturity”. On QE, the RBA “is prepared to undertake further bond purchases”, adding for the first time that “if doing so would assist with progress towards the goals of full employment and inflation”. In coming months, we expect the RBA to double the size of QE purchases.