VIEW: TD Securities Expect RBA To Reverse Taper Call

TD Securities note that "the RBA's decision to taper its bond purchases was based on expected upgrades to its economic forecasts. Those upgrades are looking unlikely in the near term as lockdowns could spread and/or be extended. If anticipated upgrades led the Bank to taper its purchases, then downgrades could drive the taper unwind. The question is how deep is the downgrade? May SoMP forecasts implied 2021 GDP at 5.25%. We expected the Aug SoMP to reveal an upgrade to 5.75%. But a weak Q3 print is likely to see 2021 GDP at 5.10%. If 2021 GDP of 5.75% was sufficient for the RBA to taper, then GDP at 5.10%, slightly below the May SoMP 5.25% supports bond purchases returning to A$5bn/week. On balance, we expect the RBA to make an announcement at next month's meeting to revert bond purchases to A$5bn/week (from A$4bn). Should the RBA decide not to lift purchases back to A$5bn/week starting from Sep, an alternative would be to lift semi purchases to 30% of bond purchases."