Forecasters divided on RBA expectations

Forecasters are divided over whether the Reserve Bank of Australia will stick with its schedule to reduce the pace of bond purchases, as NSW and Victoria remain stuck in lockdown.

The bank was expecting to reduce the amount of bonds it purchased each week this month but the lockdowns have cast serious doubt over whether it will continue with that plan.

NAB said on Tuesday morning it expected the RBA would continue with the scheduled tapering of bond purchases to $4 billion a week, from $5 billion.

The bank’s forecasters said expectations for a strong rebound in activity after the lockdowns remained largely intact. However, it noted the optics of tapering amid protracted lockdowns could mean it is a close decision.

ANZ, on the other hand, said the prospect of a weaker starting point for the Australian economy and greater risks around the 2022 outlook supported a policy response by the RBA, even if the central scenario of a strong rebound next year remained intact.

“We think the RBA will announce a delay in the planned reduction of its weekly bond purchases,” ANZ economists said.

“Another choice would be to reduce bond purchases, as planned, but commit to keeping them at $4 billion per week until the February meeting. We think a simple delay is easier to communicate than this alternative. It is likely to be a close call.”

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