RBA seen scrapping bond-buying programme at first meeting of 2022

Sydney

THE Reserve Bank of Australia (RBA) will probably scrap its bond-buying programme at the first meeting of 2022, as a strengthening economic recovery suggests the additional stimulus measure is no longer needed.

All but one of 17 analysts polled by Bloomberg expect the RBA will end quantitative easing (QE) at its Feb 1 meeting. The outlier, HSBC Holdings's Paul Bloxham, sees a taper to A$1 billion from the current A$4 billion (S$3.84 billion) weekly pace and the programme concluding in May.

Just last month, economists were divided on the future of QE, with 6 of 14 surveyed expecting a tapering.

Since then, better-than-expected data on consumer spending and employment, as well as faster inflation, have bolstered market confidence in the strength of the US$1.5 trillion economy.

That prompted Westpac Banking Corp among others to change their views on bond purchases.

"The string of strong data prints now means the RBA's dovish stance is untenable," said Prashant Newnaha, Singapore-based senior Asia-Pacific rates strategist at TD Securities.

"With a rather clear case that the RBA is making progress towards its goals of full employment and inflation, it will need to re-write the policy narrative."

The RBA, in minutes of its last meeting of 2021 released on Dec 21, said its central economic forecast supported tapering the bond purchases. The bank releases updated estimates on Feb 4 that are likely to see an upgraded outlook for unemployment and inflation.

Newnaha expects the RBA's central forecast to now be for a rate increase in 2023, though the bank will "possibly open the door to a rate hike in 2022". BLOOMBERG