MNI RBA Preview - February 2022: An End To QE & Fresh Forward Guidance

EXECUTIVE SUMMARY

• The RBA’s cash rate target will remain unchanged come the end of the Bank’s first monetary policy meeting of 2022. Meanwhile, the Bank is expected to announce the cessation of its bond buying scheme.
• Wage growth remains the missing component when it comes to the tightening puzzle, with RBA Governor Lowe continually pointing to the need for “3 point something” (likely ~3.5%) on that front, which the Bank views as the rough required level of wage growth to foster sustainable inflation in the upper half of its 2-3% target band (although it has noted that this is not an exact science).
• We ultimately expect fresh forward guidance that intimates increased chances of rate hikes during ‘22/’23 (which the market has already priced, as mentioned above). This could see the Bank remove the following sentence from its current forward guidance: “This is likely to take some time and the Board is prepared to be patient.”
• A non-committal approach re: forward guidance could make the Bank’s trimmed mean inflation forecasts key when it comes to assessing its underlying view re: rate hike timing. Forecasts of sticky underlying inflation in the upper half of the 2.0-3.0% target range may be enough for the market to assume a signal re: the potential for a rate hike in such a window.

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