Today the Reserve Bank of Australia (RBA) held its regular board meeting, albeit in extraordinary times for Australia and indeed the world.
What we saw today from the RBA was no monetary policy changes, for the simple reason that less than three weeks ago, they made some radical changes in response to the COVID-19 pandemic.
The RBA instead reaffirmed its recent actions – cutting the cash rate to 0.25 per cent, the start-up of quantitative easing, targeting the three-year bond yield at 0.25 per cent, and also having a low-cost funding facility for Australian banks for three years, with rates at 0.25 per cent.
What is of interest from today’s meeting is that the RBA noted financial markets are starting to behave a bit more normally. Three weeks ago the 10-year bond yield was shooting higher creating angst for the RBA. A higher bond yield means higher funding costs. The RBA has now been able to get the bond yield down below 1 per cent of the 10-year and down to 0.25 per cent for the three-year bond yield.
The RBA noted on the back of that, if it continues, and the economic outlook improves somewhat, they may be able to reduce their action in the bond market. In other words, they may be able to slow down the amount of bonds that they’re buying.
Basically, the RBA is saying in relation to the series of measures they put in place, they seem to be helping the economy and the financial markets, together with the measures the federal government and banks have taken. At the present time they’re monitoring things, and say they will do whatever they can to support the jobs market, incomes, and the economy.
Subscribe below to Oliver's Insights to receive my latest articlesShane Oliver, Head of Investment Strategy & Economics and Chief Economist
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