Westpac's response to the RBA minutes earlier today
The firm is not expecting the RBA to extend its bond yields target - which will be deliberate in the July meeting - to November 2024, arguing that:
Until recently Westpac had argued that a move to targeting the November bond would be consistent with the Board not expecting to achieve the conditions by the first half of 2024.That seemed to be consistent with the Board noting since the February meeting that the conditions would not (from May Minutes "unlikely") "be met until 2024 at the earliest".However, it became clear that the Board's view was that a condition for moving to the November bond would only be justified on the basis that it did not expect to achieve the inflation condition until 2025.On that basis we changed our view to expect that the Board would not extend the Target to the November bond.2025 is too far out to make a decision on that basis and "sometime" in 2024 "gives the Board plenty of latitude, particularly given the improvement in the economy since the February Board meeting , when the "2024 at the earliest" was first adopted.Also bear in mind that Central Bank Boards do take notice of market pricing. The Minutes refer to "market pricing still implying an expectation that the cash rate will begin to be increased from its current level late in 2022 or early in 2023."On that basis it seems a reasonable position for the Board to take to feel that "sometime in 2024" is a conservative approach and therefore choose not to extend the Yield Curve Targeting to the November bond.
Adding that the RBA is also to introduce a more flexible approach with regards to QE moving forward. Keep in mind that the RBA next meets on 6 July.
