Pressure is mounting as the RBA's decision is placed in focus
Three out of five of Australia’s major banking institutions claim they do not believe the Reserve Bank of Australia (RBA) will proceed with a planned tapering of bond purchases from $5 billion to $4 billion later today.
In a meeting held in July, the RBA board wanted to press ahead with tapering as it anticipated a “resumption of strong growth in 2022.” However, a recent surge in COVID-19 cases leads Westpac, CBA and ANZ to believe that the RBA will postpone tapering.
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Westpac expects the economy to contract by 4% in the September quarter before growing by 1.6% in December.
“I think there is no doubt of ‘worsening health outcomes’, so it would be quite extraordinary if the board did not decide to delay the taper,” said Bill Evans, chief economist at Westpac, as reported by IFA.com.au.
Ryan Felsman, senior economist at CBA, chimed in with similar sentiments: “With the hit to the economy from Delta-induced lockdowns far more significant than anticipated, we expect the board to stick with current levels of purchases through November,” according to the publication.
For ANZ, the RBA should not allow the economy to continue contracting without incentive to counter it as this would put Australia “at a weaker starting point for recovery.”
NAB and Macquarie, on the other hand, expect that tapering will proceed as planned.
NAB is expecting a sharp rebound in Australia’s economic situation after it reaches its target of 70% fully vaccinated adults by mid-October. However, only 40.8% of adults had been fully vaccinated as of September 06.
Tapas Strickland, director of economics at NAB, views it as a “close decision.”
Meanwhile, Macquarie believes that the RBA will stand by its word in that they would “be prepared to act in response to further bad news...that leads to a more significant setback for the economic recovery,” extended lockdowns included.
