By Swati Pandey
SYDNEY, May 7 (Reuters) - Reserve Bank of Australia is unlikely to extend its three-year yield target beyond April 2024, according to economists at three of Australia's four major banks, and two of them expected the RBA to begin tapering its quantitative easing (QE) programme later this year.
Earlier this week, the RBA maintained the targets of 10 basis points for the cash rate and the yield on April 2024 government bond. central bank also reiterated it won't increase the cash rate until actual inflation was sustainably within its 2-3% target band. Even in its most rosy scenario, published on Friday, the RBA does not see inflation hitting the mid-point of its target range by mid-2023. economists latched on to a slight change in wording in the RBA's forward guidance.
The central bank now says the conditions required for a change in the cash rate are "unlikely" to be met before 2024 at the earliest. Before the May meeting, the RBA phrased that as it "does not expect" the conditions to be met by then.
That tweak together with sharp upgrades to its economic forecasts prompted economists to say the RBA was unlikely to roll over its 3-year yield target to the Nov 24 bond. RBA has said it would take a decision on both the yield target and QE at its July 6 board meeting.
"The RBA's progressive downgrading of its commitment to keeping the cash rate unchanged for at least three years is consistent with our expectation that the 3-year yield target will not be rolled to the Nov 2024 bond," ANZ economists wrote in a note.
Further cementing that view, economists said, RBA Deputy Governor Guy Debelle on Thursday highlighted that the state of the economy, not the calendar, was "the key determinant of policy settings." at National Australia Bank and Commonwealth Bank of Australia agree with ANZ's view.
Commonwealth Bank of Australia expects RBA will begin tapering later this year by announcing a third round of A$50 billion of QE in July, half the amount of the previous two rounds.
NAB also said it expected RBA to begin tapering, but did not say by how much.
Westpac was the outlier of the four major banks with chief economist Bill Evans predicting an extension of the three-year yield target to November 2024 and another A$100 billion tranche of QE.