Let the Fed move first
There were no surprises from the RBA’s rate decision this week. The Cash rate was kept at 0.10% and the 3 year yield target remains at 0.10%. The level of bond purchases stays at A$100 billion. The RBA recognised that the domestic economy was recovering and at a faster pace than was expected.
What the RBA want to see before raising interest rates
- The RBA mentioned that they wanted to see both gains in employment and a return to a tight labour market.
- Inflation in the 2-3% target range
What’s the outlook?
- Unemployment to stay around 6% for this year and down to 5.5% at the end of 2022
- CPI inflation is expected to rise temporarily
- GDP to grow by 3.5% over 2021 and 2022
When do they expect to raise interest rates
They would expect this to occur in 2024 at the earliest. I think the risk here is that we see this happen sooner, hence the bond yield spikes this week.
On the bond purchases
The RBA brought forward bond purchases in order to try and counter the rapidly rising yields. It said that it would do so again if there was need to.
All in all no surprises and the AUD should remain supported on dips against the CHF and the JPY.