MNI RBA Preview - December 2021: Optionality Set To Be Maintained

EXECUTIVE SUMMARY

• The RBA’s December meeting and subsequent statement should be a relatively bland affair, coming in the wake of the November gathering, which resulted in the widely expected formal removal of the Bank’s YCT mechanism and adjustments to the Bank’s forward guidance. The latter evolved into a deliberately ambiguous passage, with patience and the ability to deliver sustainable underlying inflation at its core. This should remain unchanged this time out, as should the broader levers of monetary policy.
• The RBA will likely tilt its hat to the short-term risks/uncertainty provided by the omicron COVID variant, which will add a sense of vindication to its pursuit of optionality and relatively dovish utterances when we compare market views to the RBA’s forward guidance.
• Looking ahead, it will ultimately be the unemployment-wage dynamic that comes under scrutiny, with the RBA continually referencing wage growth of “3 point something” when it comes to delivering sustainable underlying inflation that resides in the upper half of its 2-3% target range (which it is focused on after years of missing the target). The Bank remains more cautious on this matter when compared to both the market and the economic commentariat.
• Bank has already signalled that February will be the next “live” meeting when it comes to reconsidering matters surrounding its bond purchasing scheme, and we do not expect any fresh signals on that front this time out.
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