RBA Preview: Forecasts from seven major banks, dovish stance to put AUD under pressure
The Reserve Bank of Australia will announce its monetary policy decision on Tuesday, August 3. 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. The latest coronavirus developments hint at a dovish shift from policymakers.
As FXStreet’s Chief Analyst Valeria Bednarik notes, AUD/USD is bearish and could fall to fresh 2021 lows with the RBA’s announcement.
“We think the lockdown in Sydney (at significant short-term economic cost) means that they’ll suspend their tapering of bond purchases until November.”
“We expect that the policymakers will announce to postpone the tapering until the recovery of the economy from the current outbreak is confirmed. The RBA will also revise its GDP forecasts to reflect the impacts from the current outbreak: cutting the growth in 2021 and raising the growth in 2022. A good deal of uncertainties in both the economy and monetary policy due to COVID-19 outbreak is likely to persist until 4Q21.”
“The RBA's 'Recovery to Expansion' narrative no longer holds given the prolonged Sydney lockdown. GDP and unemployment rate downgrades in the Aug SoMP will lend a dovish tone. We expect the Bank to reverse their Sep taper with QE staying unchanged at A$5 B from Sep'21. We shift our call on the stock under Flexible QE from 'up to A$100 B' to A$130 B.”
“The RBA will probably leave all aspects of their current stance unchanged despite a pickup in inflation in 2Q21. Market participants are still waiting to see whether the price spike in Australia pushes into wages. That said, the latest batch of COVID-19 induced lockdowns may encourage the RBA to take an even more dovish approach to previous guidance on asset purchases later this year.”
“Given the sharp unexpected deterioration in the economy the Board should send a clear signal that it continues to be committed to supporting the Australian economy with an immediate increase of weekly bond purchases to A$6 B. It should also announce a deferment of the taper from A$5 B to A$4 B that was planned for early September. It should commit to maintaining the A$6 B purchase pace through to the November Board meeting in recognition of the economy’s sudden deterioration and the uncertainty around the recovery phase.”
“We think the RBA will announce a delay to its intended September tapering of bond purchases given the downside risks to the economy are greater than when it decided on the taper in early July.”
“Following the RBA’s meeting in July, we have affirmed our view that the conditions for rate hikes are unlikely to be met until at least late 2023. Meanwhile, we expect its QE program to be extended again in November, with a further reduction in the pace of purchases likely.”