MNI RBA Review - September 2021: The RBA Goes Lower For Longer

EXECUTIVE SUMMARY

• The RBA offered up a middle ground via a dovish taper come the end of its September meeting, reducing the bond purchase run rate to A$4bn/week from A$5bn/week as it had previously outlined, but elongating the period whereby it will reconsider lowering purchases again to mid-February from mid-November. There were no accompanying notes to point to an alteration the in the 80/20 purchase weightings between ACGBs and semi-government bonds
• The extension of the bond purchase reconsideration period gives the Bank plenty of time to assess various matters, namely, the progress of the domestic vaccination campaign and early stages of the economic bounce back given the current re-opening assumptions, developments surrounding tapering at the U.S. Federal Reserve, as well as the impact of the Chinese economic slowdown and measures taken by the Chinese powers that be.
• We had highlighted the central tenants of the RBA's thought process ahead of the decision and had no real conviction re: a tapering call. In essence, the Bank underscored its focus on the medium-term, given the time taken for the impact of QE to trickle down into the economy. It also noted the increased economic uncertainty that Australia is facing at present, while suggesting that any future economic bounce back is unlikely to be as strong as what was witnessed earlier in the COVID era. Ultimately it would seem that the Bank viewed reneging on the previously prescribed tapering would have provided too negative a signal and wasn't justified. Current government bond levels and the lower A$ witnessed in recent months were highlighted in the statement (a point that we flagged pre-decision), with the Bank noting that "very accommodative financial conditions will continue to support the recovery of the Australian economy," effectively another reason to proceed with tapering.

Click to view the full review: RBA Review - September 2021.pdf