Reserve Bank of Australia Preview: Forecasts from seven major banks

The Reserve Bank of Australia (RBA) is having a monetary policy meeting this Tuesday and will unveil its decision at around 04:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of seven major banks regarding the upcoming central bank's Interest Rate Decision. The RBA is expected to leave interest rates and quantitative easing unchanged while economic forecasts are likely to be upgraded. 

In the meantime, the AUD/USD pair has attracted some buying on Monday and stalled its recent slide from the 0.7815-20 area ahead of the RBA's Rate Statement. 

ANZ

“We don’t think the RBA will signal any adjustments to its policy mix. The cash rate target will be expected to remain at 0.1% ‘until 2024 at the earliest’, quantitative easing (QE) will continue, the expectation that the term funding facility (TFF) will end in June will remain and the RBA will reiterate that a decision about whether or not to roll the 3y yield target will be made ‘later in the year.’ The most likely date for this decision is the RBA’s August meeting, though Governor Lowe has a key speech in July where he may provide a clear signal of intent about this and also the likely size of the QE extension that we expect to occur when the current one ends.”

Capital Economics

“We suspect that the Bank will lower its year-end unemployment forecast, perhaps to around 5.0%. But we doubt that the Bank will change its view on the chances of hitting its inflation target. Perhaps crucially, a more positive outlook for the actual unemployment rate will largely be offset by the reduction in the Bank’s estimate for the natural unemployment rate. Governor Lowe revealed in a speech in March that the Bank’s current estimate of the natural rate is in the low 4s instead of its previous estimate of around 4.5%. On that basis, we’re sticking to our forecast that the Bank will announce an extension to its bond purchases in June.” 

Westpac

“Our central view is that the RBA will maintain current policy settings at the upcoming meeting. We anticipate that the extension of the Yield Curve Control Policy (YCC) to target the November 2024 bonds from the April 2024 bonds; and a third QE program of AUD100 B to begin in the first week of September, will come later in the year at the Board meeting on August 3. However, in recent times, the meetings which have been linked to the Statements on Monetary Policy have incorporated policy initiatives. Of the two initiatives we expect to be announced in August, the one most likely to be brought forward to May would be the extension of YCC to the November 2024 bond.”

Standard Chartered

“We expect the RBA to keep policy rates on hold and stay on the sidelines, having extended its bond purchase package of AUD100 B for a further 20 weeks. The Q1 recovery was better than expected – we had forecast a return of real GDP to pre-pandemic levels in Q1. We forecast growth of 4.8% in 2021 after a modest 2.4% contraction in 2020. Inflation remains subdued, with trimmed mean inflation (a measure of core) declining to a historical low 1.1%, well below the RBA’s 2-3% target. We estimate that a net c.100-150K jobs will be lost in April-May after the JobKeeper programme was wound down in March. This may push up the unemployment rate, but we think such job losses will be temporary. The RBA is likely to maintain accommodative monetary policy throughout 2021-22; extend QE further after the current extension ends in August (by AUD100 B at its current purchase pace of AUD5 B/week); and keep the policy cash rate and 3Y yield curve target of 0.10% unchanged. It is also likely to maintain the April 2024 bond as the target bond in 2021.”

TDS

“We expect the RBA to retain its policy settings and stay upbeat on the recovery but stress that spare capacity in the labor market remains. Markets are likely to pay attention to the May SoMP unemployment and inflation forecasts given the recent data outturns. RBA is likely to stay tight-lipped on Yield Curve Control, but we do not expect them to extend YCC to the Nov'24 bonds.”

ING

“The low inflation profile suggests that the Bank will refrain from any hawkish tilt, and the market impact may be mostly moved by how upbeat the new economic estimates will be. What would likely have more material FX implications is an earlier-than-expected shift in the maturity for the 3-year bond yield target from April 2024 to November 2024: there are currently around 20bp difference between the yields in the two bonds. We are inclined to think the RBA will wait longer to announce a potential decision on the November 2024 bond, and with a broadly unchanged policy message we expect a balance impact on AUD/USD.”

UOB

“We continue to expect the cash rate to remain unchanged until 2024 and expect a full AUD100 B extension of quantitative easing (QE) beyond the second round. That said, we think that Yield Curve Control (YCC) may not be extended past the April 2024 bond, with the RBA no longer able to credibly commit to rates staying at 0.10% beyond this point.”