MNI STATE OF PLAY: Decision Day For RBA On Forward Guidance

The Reserve Bank of Australia's self-imposed judgement day arrives Tuesday, with policymakers set to decide whether to extend the duration of its forward guidance at a time when deliberations are clouded by snap lockdowns in major cities due to the spread of the Delta variant of Covid-19.

The RBA must decide whether to extend its yield target on three-year Australian government bonds to the November 2024 series, a call that will be based on an assessment of when that year it expects to raise interest rates from the current record low of 0.10%.

There are wide expectations in financial markets that the central bank will refrain from extending the target and keep it focussed on the April 2024 series, but the resurgence of the pandemic coupled with disappointing data on wages growth in recent weeks have raised the possibility of a dovish surprise on Tuesday.

The RBA has consistently said it will not raise rates "until 2024 at the earliest" and will base that decision on inflation moving into its target range of 2% to 3%, up from 1.1% currently.

MNI understands that the new lockdowns, which are impacting on around half the Australian population, are having more of an impact on the economy than the RBA expected in its May forecast round.

BOND BUYING

The RBA has already said that it will continue buying longer-dated government bonds beyond the current AUD100 billion programme ending in September, with some speculation that policymakers could look to upscale from the anticipated AUD50 billion to AUD75 billion.