As was expected, the RBA Board left all of its monetary policy settings unchanged at today's April meeting. Governor Philip Lowe's decision statement maintained the 0.1% targets for the cash rate and 3-year Australian Government bond yield and made no adjustments to either the bond purchase program or Term Funding Facility. The key theme from today's meeting was the strength of the Board's commitment to keeping the 3-year segment of the yield curve anchored at the cash rate target (0.1%) as the recovery progresses, with growth forecast to run at an above-trend pace through 2021 and 2022.
While the recovery in the domestic economy from the pandemic crisis has exceeded the RBA's expectations to date, highlighted by the return to pre-covid levels of employment and output growth of 3.1% in the December quarter, the Board is not getting complacent. And this is for very good reason with Governor Lowe noting "the economy is operating with considerable spare capacity and unemployment is still too high". With the unemployment rate currently at 5.8%, there is considerable scope for it to decline to a level low enough to elevate wages growth (currently at a record low of 1.4%Y/Y) to a pace assessed as consistent with holding inflation within the 2-3% target range. The Board's forward guidance remains that the cash rate will not be increased until these conditions are met, which is not expected "until 2024 at the earliest".
As regular readers will be aware, my expectation is that the upcoming decision the Board has on whether to extend the maturity of the yield target policy past the April 2024 bond will be upheld, with the RBA to demonstrate the credibility of its commitment to its forward guidance by shifting to the November 2024 bond. Additionally, today's statement noted further support to the recovery could be provided through more bond-buying beyond the $200bn already committed under the bond purchase program through to late August, based on the current $5bn weekly run rate.
Also of note were comments on the housing market, with conditions acknowledged as having "strengthened further" with prices on the rise nationally. The strength is mainly attributed to the owner-occupier segment—in particular first home buyers—but credit growth to investors is seen as "subdued". Ahead of Friday's half-yearly Financial Stability Review, Governor Lowe stated that with house prices moving higher at a time of low rates, "it is important lending standards are maintained".
