RBA Review - February 2021: Early QE Extension, The Path Of Least Regret

• The RBA followed the path of least regret at its February meeting. The decision saw the Bank leave its key interest rate settings unchanged, as expected. However, the Board chose to step in front of pockets of speculation regarding the potential for a tapering of its bond buying scheme, noting that it "decided to purchase an additional A$100 billion of bonds issued by the Australian Government and states and territories when the current bond purchase program is completed in mid-April. These additional purchases will be at the current rate of A$5 billion a week."
• The Bank clearly wanted to fend off any unwanted tightening of financial conditions that speculation surrounding a potential taper of its bond purchases may bring, and no doubt keep a lid on an A$ that is operating ~5% above the Bank's November baseline (in TWI terms). The statement confirmed as much, with the RBA noting that "the decision to extend the bond purchase program will ensure a continuation of this monetary support."
• In sum, the Bank continues to expect substandard levels of wage growth, while it expects an unemployment rate that is at least 1.0ppt above its estimate of unemployment that is consistent with levels of full employment come the end of '22, with the economy set to operate with "considerable spare capacity for some time to come." Risks around the Bank's view of the domestic economic outlook were well trodden ahead of the decision, thus providing nothing in the way of a surprise.
• The forward guidance saw some interesting tweaks, dropping the reference surrounding the Bank's willingness to do more, if required, introducing the notion that "the Board remains committed to maintaining highly supportive monetary conditions until its goals are achieved." We would suggest that this doesn't represent a meaningful change. The Bank also introduced an outright calendar aspect to its forward guidance, in that it does not expect the conditions to foster sustained realised inflation of 2-3% to be realised until 2024 at the earliest.

RBA Review - February 2021.pdf