RBA taking higher bond yields in its stride

The Reserve Bank of Australia’s half-hearted response to the surge in government bond yields underlines that it is not overly worried about the impact of higher borrowing costs on the economy. But with the Bank signalling that it is determined to keep monetary policy loose until its inflation and employment targets are met, we still expect the Bank to announce another $100bn expansion in bond purchases by the middle of this year. Meanwhile, the renewed lockdown in New Zealand will only reinforce the Reserve Bank of New Zealand’s concern that a full economic recovery will remain elusive until vaccines are rolled out. We reiterate our forecast that the Bank will only hike rates by the end of next year.