RBA expected to pare back emergency stimulus despite lockdowns – Bloomberg

The coronavirus (COVID-19) resurgence in Australia gives rise to hopes of extended easy money policies by the Reserve Bank of Australia (RBA). However, Bloomberg came out with an analytical piece saying, “Australia’s central bank is likely to gently rein in some of its emergency stimulus to reflect the economy’s powerful recovery, even with almost half the nation back in lockdown due to an outbreak of the delta variant of Covid-19.”

“The Reserve Bank is expected to decide against rolling over its three-year yield target to the November 2024 bond from the current April 2024 at Tuesday’s meeting, an extension that would imply interest rates won’t go up until 2025,” adds Bloomberg.

The story also quotes Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada as saying, “Clearly the current Covid situation will be front-and-center of discussion.” The analyst also spotted saying, “This will likely see the RBA send a reassuring message which errs a little dovish, even as it opts to not roll the target bond to the Nov-24s and signals some taper in a QE3 program.”

RBA Governor Philip Lowe is expected to wait, per Bloomberg, for the US Federal Reserve’s (Fed) move, also likely to prefer staying behind RBNZ and BOC moves, despite strong employment data at home.

It should, however, be noted that the AUD/USD prices seem bullish, per Matthew Peter, chief economist at QIC Ltd, as he said, “With the recovery in the economy pulling forward the expected timing of the first RBA rate hike, the RBA can’t roll over the three-year yield target without inverting the short end of the yield curve. However, with the Australian dollar heading towards $0.80 and significant issuance of government debt, the RBA will extend its QE program to provide insurance against an excessive steepening of the yield curve.”

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