By David Winning
SYDNEY--Members of the Reserve Bank of Australia's rate-setting board discussed key considerations that could drive significant changes to the central bank's platform of stimulus measures at its next meeting on July 6.
In minutes of the RBA's June 1 policy meeting, the central bank said a return to full employment was a priority for monetary policy as this would assist in achieving its target of bringing inflation to within a 2-3% range.
"Consequently, monetary policy would be likely to need to remain highly accommodative for some time yet," the bank said, according to the minutes released Tuesday.
Australia is experiencing a v-shaped economic recovery as border closures keep its states and territories mostly free of coronavirus, with snap lockdowns playing a role to contain outbreaks when they occur. High prices of iron ore and coal, Australia's top exports, are generating a revenue windfall, even as trade relations with China remain tense.
The recovery is driving strong employment growth, illustrated by the unemployment rate tumbling to 5.5% in April. Large increases in house prices are making people feel wealthier and more willing to spend, while businesses have signaled greater confidence in investing, partly due to government tax breaks.
The RBA's response to the pandemic has included cutting the cash rate to near zero and setting a target of 0.10% for the three-year government bond yield.
However, the strength of the economic recoveries at home and overseas has stoked a debate about when the RBA will step back from this loose policy. In the past month, many economists have shifted position to expect that the central bank won't roll its purchases from the current benchmark April 2024 bond into the November 2024 bond.
By not rolling its purchases into the November 2024 bond, the yield curve control target would gradually become less important over time. This would equate to an attractive exit strategy for the RBA.
"A key consideration for the decision regarding the yield target would be an assessment of the prospect of this condition being met some time in 2024," the RBA said, according to the June 1 meeting minutes. "Members also discussed the likely effect of the decision in relation to the yield target on overall financial conditions."
Regarding future purchases of government bonds, the RBA said options discussed included ceasing buying bonds in September and repeating 100 billion Australian dollars (US$77.10 billion) of purchases for another six months. The bank will also consider scaling bank the amount of bonds purchased or spreading transactions over a longer period.
Another option for discussion is "moving to an approach where the pace of the bond purchases is reviewed more frequently, based on the flow of data and the economic outlook," the RBA said.
"Key considerations for the decision in July would be the progress made towards the Board's goals for employment and inflation, and the likely effect of different options on overall financial conditions," the central bank added.
Write to David Winning at david.winning@wsj.com
(END) Dow Jones Newswires
06-14-21 2207ET
