Interview, Fireside Chat
Australia’s Macro Outlook and Monetary Policy
- Australia's macroeconomic environment is at record highs with a 5% growth forecast for 2021, supported by excess savings, unspent fiscal stimulus, and accommodated monetary policy.
- Labor market spare capacity is expected to constrain wages and inflation while the base case scenario projects interest rate hikes occurring only towards the end of 2024.
- The RBA currently targets a 0.1% yield on three-year government bonds but plans to likely cease rolling the April 2024 bond forward around July, allowing the program to naturally decay over a number of years without immediate financial tightening.
- Unwinding yield curve control is expected to be paired with a third extension of conventional quantitative easing around July, while interbank markets currently price approximately 40 basis points of tightening by the end of 2023.
- Tension exists between the yield cap and the 2024 rate guidance, creating a risk that the RBA may be forced to abandon caps suddenly if it misreads the macro recovery strength, potentially causing market disruption.
- House prices are projected to rise by approximately 20% over the next couple of years, with near-term government intervention considered low risk, though macroprudential regulations remain a potential impediment in a few years.