SYDNEY — The Reserve Bank of Australia has defended its yield curve target of 0.10% after several days of inaction, tamping down speculation that it was preparing to signal an earlier start to interest rate increases.
The RBA said it would buy 1 billion Australian dollars ($748 million) of April 2024 bonds, its first intervention since March, but traders said it will likely have to buy even more in order to restore the yield to target.
The yield on the April 2024 bonds has been hovering around 17 basis points all week and hit a high of 19 basis points on Thursday. The RBA’s intervention caused the yield to drop to about 0.13%, traders said.
The absence of RBA action earlier in the week had led some market participants to conclude that the central bank might be preparing to significantly shift its forward guidance on interest rates, which currently signals that rates will rise no earlier than 2024.
Growing concerns about an inflation spike in the global economy have prompted traders to bet that the RBA may start raising rates from mid-2022.
Third quarter inflation data will be released next week, which could show a bigger increase in consumer prices than expected.
“The RBA’s silence has been a little unnerving this week, resulting in markets questioning its commitment and speculating over a shifting stance in policy deliberations,” said Su-Lin Ong, head of economics and market strategy at RBC Capital Markets in Australia.
The market will likely continue to test the RBA’s resolve to hold rates steady until 2024, she said.
Further yield-curve-control operations are likely and the market will also be watching for this action to be backed up by “some firm language and jawboning,” Ms. Ong said.