The Reserve Bank of Australia (RBA) will announce its decision on monetary policy on Tuesday, November 2, at 03:30 GMT. As we get closer to the release time, here are the forecasts by the economists and researchers of 10 major banks regarding the upcoming central bank's decision. Rates are expected to remain unchanged but the RBA is expected to change its guidance following stronger core inflation.
Westpac
“The RBA Board meeting for November is not expected to see any changes to policy settings. The focus will be on the wording and guidance around the likely timing of the initial rate rise in the upcoming cycle. Currently, RBA guidance is: ‘will not increase the cash rate until actual inflation is sustainably within the 2 to 3 percent target range. The central scenario for the economy is that this condition will not be met before 2024’. We anticipate an early timing, forecasting an initial rate hike in the March quarter 2023, likely at the February meeting. Core inflation, surprising to the high side, to now be inside the target band for the first time since 2015, lends weight to an earlier timing than envisaged by the RBA.”
Standard Chartered
“The upcoming RBA policy meeting will be an interesting one. We think the RBA may adjust some of its monetary settings at the upcoming meeting. While the central bank is unlikely to make changes to the QE purchase of AUD4 B a week, it may change its phrasing related to QE purchases to ‘until mid-February 2022’ (from ‘until at least mid-February 2022’). Second, the RBA may now note that the core scenario warranting a hike may materialise earlier than 2024, albeit with a wider range of plausible scenarios (versus ‘condition will not be met before 2024’). Third, it may remove the YCC measure as the RBA has not conducted any purchases to lower the target bond yield ahead of the policy meeting.”
ING
“The RBA meets to discuss policy although we believe the bank will remain in supportive mode as the economy recovers.”
TDS
“We expect the RBA to announce an end to its Yield Target Framework next week. This follows the RBA's decision to not defend the yield on the Apr'24s even after trading significantly above the 10bps target. As for QE we expect the Bank to leave its guidance unchanged, continuing to purchase bonds at a weekly AUD4 B rate through to Feb.”
BBH
“Rates are expected to remain steady at 0.10%. However, it appears that the markets may force the bank to formally abandon Yield Curve Control and adjust its forward guidance. The RBA did not intervene to maintain the 0.10% yield on the targeted April 2024 bond, instead of allowing it to close out the week near 0.72%. If YCC is abandoned, then the RBA will also have to acknowledge that liftoff is likely to come before the current guidance for 2024. In turn, AUD would likely strengthen and so the economy will face a double whammy of higher interest rates and a stronger currency. Of note, the swaps market is pricing 75-100 bp of tightening over the next twelve months. The bank will release its Statement on Monetary Policy Friday, which will contain new macro forecasts.”
Deutsche Bank
“Two-year yields last week rose from 0.15% on Wednesday morning to 0.775% at the close on Friday as the RBA were conspicuous by their absence in defending the 0.1% target on the April 24 bond. I’ve absolutely zero idea what they are going to do tomorrow which should help you all tremendously but their absence again this morning gives a decent indication. I was taught economics in an era where central banks liked to keep an element of mystery and surprise. As such I’ve always disliked the forward guidance era as it encourages markets to pile on to much riskier, one-way positions that a normally functioning market should naturally allow. But to go from forward guidance to silence (that rhymes) is a recipe for huge market turmoil if the facts change. It's unclear if the full implications of last week’s carnage at the global front end has yet been cleared out.”
SocGen
“The target for the cash rate and three-year government bond yields (for the April 2024 bonds) will be maintained at 0.10%. The government bond purchase programme will also continue at the rate of AUD4 B a week until at least mid-February 2022. Policymakers are expected to maintain their near-term growth outlook that a material decline in 3Q21 GDP will be followed by an instant bounce-back in 4Q21 based on the increase in vaccination rates and the easing of COVID-19 restrictions. The RBA will likely continue to say that wage and price pressures remain subdued, and that inflation is running at around 1.75% in underlying terms, though the near-term forecasts for trimmed mean inflation may be revised up to reflect the 3Q data. The RBA will also maintain its current ultra-accommodative forward guidance in terms of rate hikes to 2024 in the closing paragraph of the policy statement.”
Natixis
“The RBA is expected to signal its intention to move away from its unconventional policy measures aimed at stabilizing the economy from the pandemic. Specifically, the Reserve Bank is anticipated to terminate its YCC and to discontinue to purchase government bonds in February 2022. Our call on YCC termination and tapering is that the RBA will keep a lot of flexibility to avoid a too rapid steeping of the curve as the cash rate is not expected to be increased until 2023. Our main scenario is that the Reserve Bank will fully scrap the YCC next March after updating their economic outlook on the February State of Monetary Policy. The good news is that the protracted wage weakness gives some room to the RBA as the expectation of second-round effects on inflation from wages are much lower than in the US economy.”
MUFG
“While we can anticipate the RBA bringing forward rate hike plans from the current guidance for no hikes before 2024, it is one hell of a long shot to expect the RBA to completely capitulate and start planning for hikes as soon as next year and joining the Norges Bank, RBNZ, BoE, BoC and Fed. The RBA remains concerned that underlying inflation pressures have been uncomfortably low over the last six years averaging only around 1.6%Y/Y. Similar to the ECB, we do not expect the RBA to be in a rush to respond to the current period of higher inflation. As a result, we doubt that recent AUD strength can be sustained beyond the near-term.”
ANZ
“We think the RBA will expect inflation to be 2% or higher for the duration of its forecast horizon. This would make its view that inflation will not be ‘sustainably within the 2 to 3 per cent target range’ until 2024, untenable. We anticipate the RBA will shift its forward guidance to expecting a rate hike in the second half of 2023. A change in forward guidance removes the rationale for the yield target. The RBA has two options: drop it altogether or shift to a shorter bond such as the Apr-23 ACGB. We think shifting to a bond that has just 18 months until it matures is not worth the effort, so we expect the yield target policy to be dropped. It has served its purpose. The RBA’s failure to defend the yield target recently supports our expectation.”
See – Reserve Bank of Australia Preview: Reality check for Australian policymakers