​RBA Preview - February 2021: Prolonging

The RBA is set to leave its monetary policy settings unchanged at the end of its first monetary policy meeting of 2021, while it will likely allude to more favourable economic projections on the back of domestic developments witnessed over recent months. The updated economic projections will be formally released on Friday 5 February, via the Bank's latest Statement on Monetary Policy (SoMP).

The Bank has been confronted by a run of domestic economic releases that proved to be much more favourable than the economic forecasts it produced in November, most notably on the unemployment front (with headline unemployment finishing 2020 at 6.6% vs. the Bank's baseline forecast of 8.0%).

Whispers regarding the potential for the tapering of RBA bond purchases have emerged from some quarters in recent weeks, although consensus seemingly looks for a rollover of the current round of A$100bn worth of bond purchases over a 6-month horizon when the current facility expires at the end of April. The Australian/U.S. 10-Year yield spread has seen some slight widening on the back of the aforementioned speculation, coupled with stronger than expected Australian economic data, and the RBA will be keeping an eye on the potential for any unwanted tightening of financial conditions.

Please use the following link to access the full review:

RBA Preview - February 2021.pdf