Monday, 06 December, 2021
Bank Views ahead of RBA
ANZ: If the Fed does accelerate the pace of its bond tapering, then we think the RBA could well decide to end its QE program altogether in February. This would be doubly so if the data over coming weeks means the RBA’s economic forecasts are upgraded in its February Statement on Monetary Policy. We don’t think the statement that will follow the RBA Board’s December meeting will allude to the possibility of QE ending in February, however. Not least because the critical Fed meeting won’t happen until the week after.
Bank of America: The new COVID variant and further disruption to the border does not change the fundamental story for above-trend growth and stronger price pressures in 2022. But it does give the RBA scope to underscore dovish guidance.
• It is possible the RBA will provide some guidance on tapering, but it is more likely they wait until their scheduled February review to announce any changes to the Bond Purchase Program considering the focus on upcoming data. We expect a cut in bond purchases to A$2bn/week in February, if not more, depending on data that provides more insight to economic momentum and traction for rising costs over summer.
Barclays: We expect the RBA to hold the cash rate at 0.10%, and signal its intent to taper – but not end – its bond purchases from February. We think these purchases will end around mid-2022, followed by a 15bp rate hike in November 2022.
CBA: We don’t expect any policy changes at the RBA Board’s last meeting of the year. Although the Q3 GDP print indicated that the economy had been more resilient than expected over the lockdown period, we don’t see that as having moved the dial on the RBA’s thinking around inflation and wages growth.
Goldman Sachs: We expect the RBA to keep policy settings – including the cash rate and pace of QE purchases – unchanged, and largely repeat November’s language around the forward guidance. Since the last meeting, data have been broadly in line with the RBA’s expectations, including ongoing softness in wages growth and a contraction in Q321 GDP due to earlier lockdowns.
• On the COVID front, vaccine coverage continues to be very strong in Australia and lockdown restrictions have been largely lifted, but news of the ‘omicron’ variant saw officials tighten up some interstate and international border restrictions. Overall, the RBA is likely to remain cautiously optimistic about the ‘reopening’ of Australia and rebound in economic activity going forward.
• That said, we expect the RBA to remain dovish relative to many peer central banks given softer inflation and wage pressures. As a result, we expect the RBA to keep the cash rate on hold in 2022, and our forecast November 2023 lift-off is towards the dovish end of consensus expectations. In the near term however, we do see a material risk that the RBA tapers QE more quickly at its February meeting than our current base case (for QE to wind down by May 2022). We note that the RBA’s unconventional policies are calibrated towards downside scenarios, and we see a much lower hurdle to adjusting these policies than for conventional interest rates.
ING: The RBA has been back-pedalling a bit from its insistence that rates will not rise until 2024, and it at least now acknowledges that a 2023 hike is a possibility. But there has been nothing recently to require them to make further shifts, or to stake out a new approach to asset purchases when the current policy is reviewed in mid-February. Australian Q321 GDP data was less bad than had been expected, but doesn’t shed much light on the correct policy stance and has had little impact on market expectations.
J.P.Morgan: We expect the meeting to be uneventful and officials to leave the policy mix unchanged. The data since the RBA last met have been mixed, with the stronger-than-forecast Q3 real GDP outcome counterbalanced by the spike in the jobless rate to 5.2%. The data have been particularly volatile in recent months on the heels of COVID-related lockdowns on the East Coast so we don’t expect the Bank to place too much weight on any individual print. At last month’s meeting Governor Lowe made it clear the Bank will next review the QE program in February, and while the guidance is somewhat compromised following the decision to jettison YCC between policy meetings, we anticipate the governor’s commitment will hold. The Bank is also likely to retain its forward guidance on hikes, pledging not to increase the cash rate until inflation is “sustainably with the 2 to 3 per cent target range” and “wage growth is materially higher than it is currently.”
Morgan Stanley: We expect no policy changes from the RBA at its December meeting with the cash rate held at 0.1% – and limited shift in signalling. Statement messaging will be little changed, particularly ahead of a review of QE settings at the next meeting in February. We expect it will acknowledge the better-than-expected Q3 GDP data and signs of a relatively strong recovery as restrictions ease, although this may be tempered by reference to potential disruption from the latest Covid variant.
RBC: This is the last board meeting for 2021 ahead of the traditional summer/holiday hiatus, with no meeting in January and the first meeting of 2022 scheduled for 1 February. Domestic data since the board last met continue to surprise to the upside and will add to the RBA’s confidence in the unfolding recovery and progress towards its dual goals. Omicron will likely feature in Tuesday’s discussion, but it remains far too early for any policy implications, with policy settings and forward guidance set to remain unchanged. Governor Lowe’s speech may elaborate further, but his final speech on 16 December could be a bit more insightful
Scotiabank: The decision will be monitored for two possible though unlikely hints in light of the arrival of the Omicron variant and the uncertainties it represents. First, while they have stated that the A$4bn/week bond purchase program will be re-evaluated at the next meeting in February, we’ll be watching for hints that they are perhaps leaning toward curtailing or ending it. A full discussion at the February meeting likely makes it premature to expect much just yet. This would be a further step after abandoning its 3-year yield target under pressure from financial markets. Second, any discussion around potential timing of rate hikes is unlikely at this meeting but conditions around growing consensus opinions that it may bring forward its guidance somewhat may be discussed.
Societe Generale: We expect the RBA to maintain its current monetary policy settings.
• As market participants seem to agree that there could be further tapering in February of next year, they are likely to focus on whether the RBA maintains its still-dovish forward guidance or not. While we had thought that the forward guidance had been changed at the November meeting to reflect a shift in the timing of the first rate hike from 2024 to 2023, Governor Lowe later suggested that the RBA would maintain the timing of the first rate hike in 2024, stating: “It is still plausible that the first increase in the cash rate will not be before 2024.” We now suspect that the policymakers want to keep the timing of the first rate hike a little vague.
• We do not think that there will be any allusions to a change in forward guidance and expect the concluding paragraph of the policy statement to be much the same as it was in November. We see the rising uncertainty on the growth and inflation outlook due to the emergence of COVID variant of concern, Omicron, as the main reason why the RBA is likely to maintain a cautious (and even vague) approach on its policy actions in the future. Also, recent data flows do not contain any major surprises that could alterthe RBA’s central economic forecasts. Q3 GDP data confirmed the damage from the Delta outbreak, but also suggested a quick bounce-back with a surge in household savings rate and resilient private investment. Strong retail sales in October proved that an instant recovery in consumption was underway. Wage growth resumed a ‘normal’ pace in Q3, and a rather surprising contraction in October employment may support the RBA’s dovish view that they do not need to be in a hurry to raise policy rates. Policymakers are likely to closely monitor the development of the Omicron variant and the pace of the domestic economic recovery in December 2021 and January 2022, until the next meeting in February 2022.
TD Securities: We don’t expect the RBA to announce any policy changes in the Dec Statement, retaining the target rate at 0.10%, the rate on ES Balances at 0% and QE continuing at a weekly rate of A$4bn/wk through to Feb. While the Omicron variant poses downside economic risks, expect the Bank to strike an upbeat note on the post lockdown recovery.
Westpac: The RBA is expected to keep policy settings unchanged at its last meeting of 2021. As such, the focus will again be on the wording of the Governor’s decision statement, particularly any assessments of the latest round of economic data, including the Q3 national accounts, and the shifting external environment, particularly with respect to price inflation in developed economies.
• The Bank’s following meeting, on February 1 next year, will likely see more meaningful shifts with a scheduled review of the bond buying program expected to see purchases scaled back from $4bn/week to
• A$2bn/week prior to a wind down of the program by mid -May.
• The Governor continues to emphasise the Board’s patience with respect to the timing of the initial rate increase. Westpac remains comfortable with our view that the bank’s first move will come in February 2023 although markets are anxious for a mid-2022 move while the Governor himself is still open to waiting till 2024.
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