RBA more upbeat about bounce-back

The October post-meeting RBA statement was a little more upbeat about the coming bounce out of Delta. I already had the view that the RBA was building toward a faster taper in February, so the usual caveats about confirmation bias apply.

Whereas the September post-meeting statement was cautious about the timing and strength of the post-Delta bounce-back, the October post-meeting statement noted that firms are looking to hire in anticipation of the re-opening.

the Bank’s business liaison and data on job vacancies suggest that many firms are seeking to hire workers ahead of the expected reopening in October and November.

RBA October 2021, post-meeting statement (my emphasis)

This was entirely new, and balanced their prior concern about the timing and pace of the bounce-back (and caution about the nature of an endemic-COVID recovery). Whatever the state of the economy in mid 2022, it looks like the initial bounce back from Delta is going to be strong. I think it’ll ultimately disappoint the RBA’s forecasts, but that’s not going to be clear until H2’22.

Significantly, their concerns about slowing global growth and China didn’t feature in the October post-meeting statement. These points had been a feature of the September minutes (risks often percolate from the minutes into the post-meeting statement) but they didn’t make the cut today. I think that tells you a lot about the optimism that the RBA is trying to project. They aren’t going to ease again and they want to be a source of confidence (Gov Lowe’s cup is famously half-full) … so they cheer-lead.

Coming into the October meeting, there was much anticipation of the housing / macro-prudential section of the post-meeting statement. The housing paragraph was tweaked to add “and that loan serviceability buffers are appropriate” to the existing edict that “it is important that lending standards are maintained”. The word “buffers” didn’t make it into RBA Bullock’s recent speech, The Housing Market and Financial Stability, so I’m pretty sure that this is something new. My guess is that the CoFR decided that raising the interest serviceability floor, or similar, was the right way to limit financial stability risks in the housing market.

To the extent that tighter macro-prudential policies cool the housing market, they will slow the return to full employment and 2.5% inflation, so these may be a reason that hikes are delayed. However, that’s some way of from being relevant just now.

I still think they they are going to be fast to taper, and slow to hike. I expect a 2bn taper to 2bn per week in February, but that hikes will come much later, probably in 2025.

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