ANZ expects the Reserve Bank of Australia to end quantitative easing and start quantitative tightening (QT) at its first board meeting of the year on February 1. Prior to the employment report, which was released on Thursday and showed exceptional momentum, ANZ said it thought the central bank might delay a decision on QT.
“The pace of improvement in the labour market data will flow through to the RBA’s February forecast update. This will trigger the end to QE and, most likely, a decision to embark on QT,” said ANZ in a note. Quantitative tightening means the RBA would let bonds mature and therefore reduce its balance sheet.
ANZ also expects the RBA to change materially its forward guidance on rates. “We think the RBA’s base case will shift to 2023, with it now prepared to acknowledge the possibility of a move in 2022 –something that it has previously strongly pushed back against.” The central bank said a rate rise was unlikely until late 2023 or 2024 due to lagging wages and inflation.