VIEW: Westpac Reiterates Views On YCC And Bond Purchases

Westpac's Bill Evans notes that "in December, Westpac forecast that the QE program would be extended with a further A$100 billion facility (A$70 billion AGS; A$30 billion semi-government) to replace the current facility (A$80 billion AGS; A$20 billion semi government) from early May. The program would then be scaled back to A$50 billion from November and a further A$50 billion from May 2022. If we are correct then the first extension will need to be announced by the April Board meeting. It is reasonable to expect that the announcement of the extension of the facility will be delayed until the April Board meeting as the Board acquires further information about the state of the recovery, particularly given that the Employment Report generally reflects the first half of December and "misses" the impact of the state border closures and lockdowns later in the month and through to January."

• Evans also notes that "our view has been, and remains, that the YCC policy will need to be adjusted in early 2022… We do not expect damaging imbalances in asset markets in 2021 which might prompt an earlier adjustment from the RBA; and even if that were the case macro prudential policy focussed on the housing market would be the preferred policy option. Markets are impatient and we can therefore expect some early upward pressure on the three-year swap rate but we believe markets will have to wait until 2022 for the adjustment in the three year yield target."