With QE switched onto autopilot for the summer as the RBA waits for the reopening of state economies to put the recovery back on track, monetary policy will be left unchanged at today's monthly meeting (decision due at 2:30pm AEDT). Assessing the Delta setback as a case of recovery delayed, not derailed, the RBA at the September meeting confirmed its previous announcement to taper the weekly run rate of QE purchases from $5bn to $4bn (chart below). However, the Board elected to push back the date of the next review of the program from November "until at least mid February 2022", lifting expectations for the stock of QE purchases over the period by $11bn (see here) and giving time for the recovery to take shape before making its next move.
Today's statement from Governor Philip Lowe should reiterate the RBA's upbeat outlook for the domestic economy in light of the rise in vaccination rates and the recent roadmaps for reopening in New South Wales and Victoria. The unemployment rate is expected to rise over the near term, but elevated job vacancies indicate underlying labour demand has been strong despite the lockdowns, pointing to an upcoming rebound in conditions.
Uncertainties around the recovery remain the outlook for household spending amid significantly higher caseloads than seen in earlier reopenings, while the situation offshore with supply-side constraints pushing inflation higher is another factor that may draw consideration in the domestic context. While government bond yield curves have taken on a steepening impulse of late, the comments from Governor Lowe at his Anika Foundation speech pushing back against market pricing for rate hikes as early as next year indicates the Board is still firmly of the view that its forward guidance remains appropriate, with the wage and inflation dynamics consistent with a higher cash rate not expected "before 2024".
Ahead of Friday's semi-annual Financial Stability Review, comments on the housing market will also be of interest, with the recent statement from the Council of Financial Regulators (which includes the RBA) noting that a "period of credit growth materially outpacing growth in household income" posed risks to the economy and could prompt macroprudential measures to come into play.
