INSTANT VIEW 3-Australia's central bank pares bond buying programme
SYDNEY, July 6 (Reuters) – Australia’s central bank on Tuesday said it would extend its current bond buying programme out to at least mid-November, but pare back the amount purchased to A$4 billion ($3.02 billion) a week, from the current A$5 billion.
The Reserve Bank of Australia (RBA) held the cash rate at 0.1% as expected and said its central scenario was that a hike was unlikely until 2024.
The local dollar pared early gains as some in the market had wagered the bank might drop the mention of 2024 all together.
A Reuters poll of economists had found all expected a steady rate and for the bank to stick with its current bond yield target of April 2024 while tinkering with its bond buying programme.
* RBA holds at 0.1%, last cut in Nov 2020
* RBA says to retain the April 2024 bond as the bond for the yield target and retain the target of 10 basis points
* RBA says to continue purchasing government bonds after the completion of the current program in early September. Purchases will be at the rate of A$4 billion a week until at least mid November
* To maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances of zero per cent.
* Text of the statement can be found on
* The Reserve Bank’s Web site is at: www.rba.gov.au/
TAPAS STRICKLAND, ECONOMIST, NATIONAL AUSTRALIA BANK, SYDNEY:
“Two key things from today’s statement for us was that the RBA will start tapering its QE programme and secondly, the push back on market pricing by maintaining its 2024 guidance in terms of when conditions will be met for rate hikes.”
SHANE OLIVER, CHIEF ECONOMIST, AMP CAPITAL INVESTORS, SYDNEY: “There were no great surprises in terms of the tweaks to monetary policy. At the same time, the RBA remains very dovish, reiterating that under their central scenario they don’t see the case for a rate hike until 2024. They’ve altered that wording a little bit. That they’ve dropped the reference to ‘2024 at the earliest’ would suggest that their central case is 2024.
“Overall their statement was fairly dovish. They see a stronger recovery occurring … but not enough to signal a bringing forward of interest rate hikes.”
QI GAO, ASIA FX STRATEGIST, SCOTIABANK, SINGAPORE:
“(It was) more or less in line with my thoughts…continued supportive policy but to a lesser extent – it was slightly more hawkish than shifting (the yield target) to Nov. 2024 bonds.
“I still think the AUD will keep benefiting from the global reopening and economic recovery. Meanwhile, the Fed’s tapering and tightening will weigh on the AUD – the net impact will decide the exchange rate.
“(Lowe’s remarks) could be similar. On one side, confidence in the economy, on the other hand some supportive policies are still needed.”
CALLAM PICKERING, APAC ECONOMIST, INDEED, SYDNEY:
“While the Reserve Bank left the cash rate unchanged, the major takeaway from their July meeting was the extension of their bond purchasing programme until at least mid-November.
“The Reserve Bank has again emphasised that they will not raise rates until ‘actual’ rather than ‘forecast’ inflation is sustainably within the Bank’s 2-3% target band. That means that the decision remains data dependent and won’t be preempted by upgraded forecasts.
“Currency markets remain tentatively poised and shifts in policy direction and language could prove crucial in coming months.”
ANTHONY DOYLE, CROSS ASSET INVESTMENT SPECIALIST, FIDELITY INTERNATIONAL, SYDNEY:
“Today the RBA took its first steps along the long road towards policy normalisation. By not extending one of the key emergency pillars of monetary support – the 3-year Australian Government bond yield target of 0.10% – the RBA has signalled to the market its growing confidence in the outlook for the economy as it rebounds back from the pandemic-induced recession.
“By pivoting to a A$4bn of government bond purchases per week commitment from October until at least mid-November, the RBA has built-in some flexibility to any future policy decisions as it monitors how the domestic and global economies evolve over the remainder of 2021.
“Australia’s slow vaccine roll-out by developed market standards suggests the RBA is right to not to get too carried away with the recovery, and Governor Lowe will be keen to emphasise that any tightening in monetary policy will be very gradual and contingent on the economy reaching full employment and generating materially higher wages growth.”
STEPHEN MILLER, INVESTMENT STRATEGIST, GSFM, SYDNEY:
“Despite impressive rates of employment growth and a greater than anticipated reduction in the unemployment rate, the RBA is proceeding cautiously in reducing the monetary support. If it wasn’t the case already the recent outbreak of COVID infections in Sydney and elsewhere would have emphasised to the RBA Board the advantages of maintaining that cautious disposition.
“Markets, however, have been somewhat sceptical pricing a policy rate increase by the end of 2022.
“It is true that central banks are not always good forecasters of their own policy actions. However, markets too can be egregiously inaccurate in their forecasts of central bank actions.
The Australian dollar eased back slightly to $0.7549 on the decision. Interbank futures imply some risk of a rate hike by late next year.
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