VIEW: UBS: Will The RBA Join The Pack?

UBS judge "markets are too complacent about RBA QE; and the RBA will start preparing investors to a quick end to QE. While our base case remains for the RBA to halve buybacks in February to A$2bn/week and stop purchases in May, we see a risk that the Bank may opt for an earlier hard-stop of QE at the February meeting. By then, the RBA will be on track to own >35% of ACGB outstanding; an ownership share that elsewhere has usually meant increasing disruption to the functioning of the bond market. Provided the domestic economy rebounds in line with our expectations, we think that the RBA will be uncomfortable in owning such a large share of the market; especially, if global central banks have started the taper (or even stopped)."

• "UBS base case remains that YCC will be abandoned in 2022. However, while the inflation backdrop in Australia is arguably weaker than offshore, we judge that 1) the move away from COVID-zero policies; 2) rising vaccination rates; and, 3) the ongoing easing of restrictions suggest that the balance of risks for domestic growth and inflation is now tilted to the upside. Adding to that, the path towards normalisation recently started by global central banks reduces the pressure on the AUD. Together, this suggests that the RBA has a case to tweak its forward guidance earlier than we expect and allow for the possibility of hikes ahead of 2024, if conditions warrant it. The RBA's soft defence of the YCC target this week - with a tweak to the repo facility, but no buybacks of the Apr-24 line (despite trading well above target) - suggest a discussion on the 'pro & cons' of YCC at the RBA will happen at November's meeting."