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RBA makes March rate call

 The RBA has made its latest decision on rates against a backdrop of rising bond yields and increasing economic uncertainty.

The RBA has left rates on hold at their effective lower bound of 0.1 per cent, saying, “The board remains committed to maintaining highly supportive monetary conditions until its goals are achieved.”

However, the RBA opted to bring forward bond purchases this week to “assist with the smooth functioning of the market”. Bond yields have risen dramatically in recent weeks despite the best efforts of global central banks as investors move away from defensive assets in anticipation of a stronger economic recovery.

“The problem for central banks like the RBA is that they have seen this all before and worry that without a much tighter labour market and faster wages growth then the anticipated near-term pick-up in inflation won’t be sustained and so they will continue to undershoot their inflation goals if they raise rates too early or end bond buying prematurely as the bond market is implying will be warranted,” said AMP Capital chief economist Shane Oliver.

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“In other words, central banks worry that the bond market may be jumping at shadows – at least in part – and if they follow bond markets into premature tightening they will be too.”

RBA makes March rate call
RBA makes March rate call
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