RBA yield target capitulation signals tighter policy
The RBA’s yield curve targeting experiment ended this week not with a bang but a whimper. Market expectations for a cash rate hike, fuelled by stronger than- expected inflation data, pushed yields well beyond the RBA’s 0.1% target for the April 2024 bond. In a relatively thin market, the RBA had little choice but to let the target fold, at the cost of some credibility in financial markets.
What you will learn:
- We expect the cash rate will be on hold through 2022. Nevertheless, the yield curve has shifted up in recent months, and the short end has now lost its policy anchor. This is already feeding through to higher rates for long-term, fixed rate mortgages, and a similar upward drift can be expected for other borrowing rates in the coming year.
- Our expectation is that the cash rate will be on hold through 2022. However, there is a nascent tightening of monetary conditions occurring, which will be hastened by the end of the yield target.
- Against the backdrop of tighter conditions, the RBA’s Term Funding Facility (TFF) will provide some relief to banks’ funding costs and so lending interest rates.
Tags:
Related Services

Post
Easing financial conditions offer CRE some respite
Our measure of financial conditions has become less restrictive in the US and started to loosen in the eurozone and the UK, reflecting investors' expectations that interest rates have peaked. This should aid the outlook for commercial real estate (CRE) on the margins, although the scale of past rate hikes, sluggish economies, and structural headwinds mean the sector still confronts challenging fundamentals.
Find Out More
Post
Eurozone key themes 2024 – A fragile recovery will gain impulse
After a year of stagnating activity, the eurozone economy will continue to struggle to gain traction in the near term given multiple headwinds. But we expect a gradual recovery in 2024 that will gather momentum as consumers regain some of their lost purchasing power and financial conditions ease.
Find Out More