MNI RBA Preview - May 2021: A Brighter Assessment, But No Change In Stance

• The RBA is set to leave its broader monetary policy settings unchanged when it issues its latest monetary policy decision on Tuesday. It will once again allude to a better than expected round of local economic developments over recent months, deploying the customary guidance ahead of the formal release of its updated economic projections via the Statement on Monetary Policy (SoMP) on Friday. Do note that RBA Deputy Governor Debelle will have the opportunity to fill in any gaps in communication on Thursday, when he gives an address on "Monetary Policy during Covid."
• The Bank's GDP track will likely be nudged higher, given the fact that realised Q420 GDP wasn't quite as soft as the Bank projected.
• The Bank will have to lower its assumed trajectory for the unemployment rate, given the fact that the unemployment rate is already comfortably below the levels it pencilled in for the end of Q221 (6.5%), printing at 5.6% as of March, with the underemployment and underutilisation measures normalising to print below the levels witnessed in February 2020.
• Elsewhere, focus continues to fall on the Bank's 3-Year yield targeting policy, namely whether or not the Bank will choose to roll its targeting mechanism over to ACGB Nov '24 from ACGB Apr '24 at the appropriate time. Our policy team recently suggested that the Bank will not make a formal decision on that matter until July or even August.
• All in all, the RBA will want to strike a balance, formally marking to market the recent positive economic developments, while continuing to toe a dovish line to maintain easy monetary conditions to nurture the economic recovery.

RBA Preview - May 2021.pdf