What did the RBA statement tell us?

Firstly, there were no surprises from the RBA’s rate decision. The Cash rate and the 3-year yield target were both were kept at 0.10%. The level of bond purchases was unchanged too and stays at $100 billion AUD. The RBA also recognised that the domestic economy was recovering more quickly than expected and most firms had begun loan repayments now.

What is the RBA’s focus before raising interest rates?

  • They want to see gains in employment and a return to a tight labour market.
  • Inflation needs to be in the 2-3% target range.
  • This is not expected to occur until 2024.

What’s the economic forecast?

  • The unemployment level is due to stay around 6% for 2021 and down to 5.5% at the end of 2022.
  • CPI inflation is expected to rise temporarily due to some short term factors.
  • GDP is anticipated to grow by 3.5% over 2021 & 2022.

When do they expect to raise interest rates

2024 at the earliest. However, there is a risk here that it happens sooner. The RBA can say that rates won’t rise until 2024. However, if the market questions the credibility of the RBA expect strong AUD gains pricing in a rate hike. Remember the RBA will not want to be perceived to move ahead of the Federal Reserve. The credibility issue the Fed has is naturally going to get passed down the line of smaller banks.

On the bond purchases

The RBA brought forward bond purchases in response to the rapidly rising bond yields. The RBA was prepared to do so again if necessary.

All in all, no surprises and the AUD should remain supported on dips against the CHF and the JPY. You can read the full statement here.