Reserve Bank of Australia Preview: Forecast from six major banks

The Reserve Bank of Australia (RBA) is set to announce its Interest Rate Decision on Tuesday, November 3 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 RBA is likely to lower the Official Cash Rate (OCR) by 15bps to a new record low of 0.10% from the current 0.25%. An expansion of AUD100 billion to its government bond-buying program, quantitative easing (QE), is also due on the cards. 

Ahead of the meeting, the AUD/USD pair is at risk of losing the 0.7000 figure and enter a selling spiral.

Westpac

“All the key policy rates – cash rate; three-year target bond rate; and rate on Term Funding Facility will be cut from 25bps to 10bps. The rate on surplus Exchange Settlement balances will be cut from 10bps to 1bp. The Board will announce a change in its bond purchase program from ensuring the smooth functioning of the bond market and ensuring that the 3-year bond rate holds at the target rate to a more general role of purchasing Australian government bonds and semi-government bonds, across the curve, including maturities in the 5–10 year range. With markets expecting a specific volume target, the announcement of an open-ended commitment might cause market disappointment with a potential lift in market yields and the AUD.”

ANZ

“We expect the RBA to deliver a micro-cut and introduce a QE program targeting AUD100 B purchases across 5y-10y bonds through to June 2021. Lowe has made reference to the Australian yield environment, which remains both higher and steeper than peer nations. While the sizing is less certain, a lack of commitment from the RBA may see the market unwind recent AUD weakness.”

Standard Chartered

“We maintain our forecast that the RBA will deliver a slew of rate cuts. We expect it to cut the policy rate by 15bps to 0.10% and to lower the interest rate on its term funding facility and the target yield on 3Y government bonds to 0.10%. We, however, do not expect the RBA to announce the beginning of QE, or a new commitment to regularly purchase a specified quantity of bonds in November. Instead, it is likely to state its commitment to continue to buy bonds as necessary and to focus its purchases across the curve, instead of focusing on the 3Y point (which is the target of its yield curve control). We expect the rate cut and longer-dated bond purchases to weigh on back-end yields and the AUD. We expect more back-end bond purchases to flatten the AUD yield curve and drive AUD underperformance.”

CIBC

“We expect a combination of measures to be announced. We see the cash rate target being cut from the current 25bps to 10bps and the YCC target on 3- year bonds to be reduced to the same 10bps. The rate on the term funding facility (TFF) will also likely be cut to 10bps.”

ING

“Economists’ consensus and market pricing are widely expecting a 15bp cut to the Cash Rate. We don’t agree and expect the RBA to adjust from a yield target of QE to a volume (AUD100 B) target and start buying longer-dated bonds. We see the balance of risks as heavily tilted to the upside for AUD ahead of the RBA meeting.”

TDS

“We expect the cash rate, the 3yr YCC Target and the Term Funding Facility rate to be cut to 0.10%, ESA interest at 0.01%. The RBA is likely to announce a QE program to purchase 5-10yr ACGBs and semis, a program of around AUD100 B appears likely. We expect the Bank to purchase bonds regularly but don't expect the RBA to keep purchases constant each week, but vary on supply/demand.”