SYDNEY, June 4 (Reuters) – Economists at Australia’s two main lenders expect the country’s central bank to switch to a “flexible” quantitative easing (QE) program, underlining uncertainty over its possible decision to reduce its extraordinary stimulus plan.
Westpac Banking Corp and ANZ Banking Group now expect Reserve Bank of Australia (RBA) to announce weekly AU $ 5 billion open-ended government bond purchase program at its meeting of the board of directors on July 6.
Both banks previously planned a third round of A $ 100 billion QE program over a six-month period, identical to the first two cycles.
While they expect the RBA to continue with the current weekly pace of buying AUS $ 5 billion bonds, both banks now believe the RBA would avoid committing to a full amount.
“This model would provide flexibility, allow the RBA to monitor US Federal Reserve actions more closely, but certainly does not appear to ‘diminish’ given the room for maneuver that still exists for quantitative easing in Australia,” Evans wrote in a note.
However, this expectation is not shared by the other two big banks. The Commonwealth Bank expects the RBA to halve the size of its program to A $ 50 billion, while the National Australia Bank is forecasting a cut QE of A $ 75 billion.
Neither bank expects the RBA to push its three-year yield target past the April 2024 government bond.
RBA Governor Philip Lowe is due to hold a press conference after his July board meeting, contrary to his usual practice, which Westpac says could be used to convince investors that the central bank was still very present on the market to expand its balance sheet. .
Economists from ANZ and Westpac said it would be premature for the RBA to start declining given it struggles with sluggish inflation in an economy that is rapidly recovering from the coronavirus pandemic.
RBA Deputy Governor Guy Debelle recently noted that the central bank’s “stock†of purchases mattered more than “flow,†adding that the RBA was well behind other central banks on this measure.
The stock of RBA bonds is expected to reach 10% of Australia’s gross domestic product of A $ 2 trillion when the second round of quantitative easing expires in September.
This compares to 20-25% for the United States, Canada and New Zealand and 30 ?? 35% for Europe and the United Kingdom. (Reporting by Swati Pandey; Editing by Shri Navaratnam)