Reserve Bank of Australia Preview: Forecast from six major banks

The Reserve Bank of Australia (RBA) is set to keep policy rates unchanged at the 2 February meeting, the first one of 2021. The announcement is due out at 03:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of six major banks regarding the upcoming central bank's decision. 

The AUD/USD pair is trading closer to the 0.7600 level ahead of the event, as the American currency continues to strengthen.

ING

“We would be surprised to see the RBA change its stance on the AUD at this point: the recent rise in Australia’s terms of trade makes it hard to argue that the currency is materially overvalued. We could see the AUD react positively to the rate announcement on the back of upgraded forecasts, which might spark some speculation of earlier-than-expected tightening (even if the policy message remains dovish). Still, the uneven risk environment may keep AUD/USD gains capped.”

TDS

“We don't expect the RBA to make any changes to policy settings or for the Board to announce impending policy changes. That said we expect the Board to reinforce its YCC commitment. The RBA Governor's speech on Wednesday titled 'The Year Ahead' will be closely scrutinised while upgrades to key forecasts are likely in Friday's SoMP.”

ANZ

“With the unemployment rate averaging 6.8% in Q4 2020 rather than the 8% forecast by the RBA, there is little doubt the update will show a more positive outlook. Critically, however, we don’t think the RBA will forecast inflation reaching 2% at the end of the forecast period (which has been extended to June 2023). This is one reason to believe Tuesday’s RBA statement will continue to state that, ‘given the outlook, the Board is not expecting to increase the cash rate for at least 3 years.’ Moreover, we think there is a good chance the RBA will either announce the extension of its quantitative easing program this week or strongly hint at it. It is possible that the RBA’s stance on QE will be laid out in Lowe’s speech on Wednesday, rather than the Tuesday statement. We think he will be at pains to emphasise that while the outlook is better the economy is still a long way from where the RBA wants it to be. As such it is still too early to think about reducing the level of monetary policy support for the economy.”

Westpac

“We do not expect any major changes to the RBA’s ultra-accommodative policy. The Governor is, however, scheduled to deliver a lunchtime speech to the National Press Club on Wednesday entitled ‘The Year Ahead’. Often speeches at this time of year have been used to shift policy perceptions and expectations, so it will be very closely watched, especially any comments on the current QE program and the possibility of it being extended beyond its current $100 B target. Despite the RBA currently only being 50% of the way through its initial program, the Governor is sure to be asked about the success of the current program and to provide any guidance on this policy measure beyond early April, when the current program will have been completed. Westpac continues to believe that the RBA will indeed roll into another $100 B over the six months from April and then scale it back to $50 B for each of the subsequent six month periods.”

Standard Chartered

“We expect the RBA to keep policy rates unchanged. It cut rates to the floor of 0.10% last November and announced QE, with a bond purchase package of AUD100 B targeting government bonds of 5Y-10Y maturities until early Q2-2021; we expect it to maintain the status quo. The post-meeting statement and Governor Lowe’s speech on February 3 to the National Press Club are key. Markets will be looking for mention of tapering asset purchases and the RBA’s view on inflation. We expect the RBA to remain on hold near-term; it may extend QE when it expires in April, but we do not expect further cuts to either the policy cash rate or the yield curve control rate.”

MUFG

“The RBA is likely to revise higher their economic outlook to reflect the stronger recovery that is unfolding. Market participants’ will be watching closely the updated inflation forecasts in particular for any signals over the likely timing of when monetary policy will be tightened in the coming years. It remains to be seen whether the RBA will also revise higher core inflation back into their 2-3% target band by 2023. Governor Lowe has already stated that the unemployment rate may need to be ‘four-point something’ to have wage growth consistent with target inflation. It still suggests that there is a long way to go for the labour market recovery to meet the RBA’s goals so they are unlikely to be in a hurry to tighten policy. The most immediate policy decision for the RBA will be what to do with the AUD100 B QE programme which is scheduled to expire at the end of April. We believe that the programme is likely to be extended until later this year although the pace of purchases could be slowed. The overall outcome from the RBA meeting is likely to be supportive for the Australian dollar.”