With the Reserve Bank of Australia (RBA) not expected to make any significant changes to monetary policy this month, global investment management firm T. Rowe Price has cast its eye beyond the December Board meeting and at what factors could influence the market.
T. Rowe Price Associate Portfolio Manager Scott Solomon said since the November meeting, there had been a “messy” employment report and while wages were showing signs of life, there’s nothing to alarm the RBA.
“Furthermore, you’ve had the uncertainty unleashed on the markets by the emergence of the Omicron variant calling into question whether conditions for a sustained global recovery will continue,” Mr Solomon said.
“All of this adds up to what should be an uneventful release.
“Beyond the December meeting we expect the RBA to remain patient. We’ve seen central bankers from the Bank of England to the Reserve Bank of New Zealand fill the airwaves with hawkish talk only to back it up with dovish and measured policy.
“The Omicron news is just the latest example of how hard this environment is on policy makers.
“Every time there appears to be significant clearing ahead, a new problem pops up making it difficult to pivot policy.
“On top of that they have to contend with the social signals of hawkish policy during a pandemic and specifically for the RBA there’s an election cycle coming up.
“The wild card here is how the US Federal Reserve continues to evolve policy. Throughout the pandemic, the RBA has closely mirrored Fed policy and there are signs the Fed may be on a path to de-emphasizing its Flexible Average Inflation Targeting Policy – a continued hawkish pivot from the Fed will likely give the RBA some cover.
“I get the sense the RBA would like to get out of the business of bond buying sooner rather than later as they are growing concerned about their large presence in the Australia Commonwealth Government Bond market.
“If the US speeds up its taper, I think the RBA can do so as well.”