RBA Preview: Forecasts from seven major banks, focus on language around Omicron

The Reserve Bank of Australia is having a monetary policy meeting and will announce the resulting decision on Tuesday, December 7 at 03:30 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 decision. Policymakers are expected to, hold their fire and keep the current policy on hold after abandoning the yield-curve control in November.

ING

“We do not expect the RBA to change policy at this meeting. 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 before mid-February. More relevant will be the 3Q21 house price data released on the same day as the rate decision. Annual house price inflation in 2Q was 16.8% year-on-year. That is high by any standard, so any additional increase will put pressure on the central bank to respond, though until the labour market and wages data fall into line, we believe the RBA will stick to the current playbook.”

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 AUD4 B/week to AUD2 B/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.”

Standard Chartered

“We do not expect much new from the RBA given the slew of major changes announced at the last meeting. Our current forecast is for the RBA to start normalising in Q4-2022. At 0.1%, the policy rate is excessively accommodative for an economy that may return to trend by mid-2022. Moreover, both growth and inflation data have surprised to the upside, with the latest Q3 GDP contraction much milder than expected. On balance, we do not expect the RBA to change its tune again so quickly; if anything, it may stress the Board’s patience, bringing up the example of Omicron as an uncertainty.”

TDS

“We don’t expect the RBA to announce any policy changes, retaining the target rate at 0.10%, the rate on ES Balances at 0% and QE continuing at a weekly rate of AUD4 B/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.”

BBH

“Reserve Bank of Australia is expected to keep policy on hold and maintain its dovish tone. At the last meeting, the bank abandoned Yield Curve Control but maintained its dovish tone. Rates were kept steady at 0.10% and QE was maintained at the current weekly pace of AUD4 B until the planned review at the next meeting on February 1. However, the bank pushed back against the market’s aggressive tightening expectations by stressing again that it was unlikely to hike rates until 2024 at the earliest. Yet the swaps market is still pricing in nearly 75 bp of tightening over the next twelve months. We expect it to push back again this week, citing omicron as a major factor to remain cautious.” 

Citibank

“RBA Board Meeting: Citi cash rate forecast: no change, Previous: no change. We do not expect RBA to make any policy shifts in its final meeting of 2021. This means the cash rate will remain at 0.1%, and the Board will persist with purchasing AUD4 B worth of bonds per week, until its next review in February 2022.”

SocGen

“We expect the RBA to maintain its current monetary policy settings, maintaining a cash rate target of 0.10% and continuing the government bond purchase programme at a rate of AUD4 B a week until at least mid-February 2022. 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. 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-19 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.”

See – Reserve Bank of Australia Preview: Market players looking for tightening hints