RBA baseline forecasts still current in lockdowns – MNI

The Reserve Bank of Australia (RBA) is expected to revise its baseline economic forecasts if the current pandemic lockdowns extend into the fourth quarter of 2021, MNI reports, citing sources with the central bank thinking.

Key takeaways

“If the Sydney lockdown continues into the fourth quarter of the year, then the RBA would consider revising its forecasts towards what it called the "weaker path" in the SoMP.”

“Under this scenario, inflation is forecast to be 1.5% by December 2023, significantly lower than the RBA target.”

“The RBA is expecting a short-term spike in unemployment and a hit to GDP in the third quarter, but a strong rebound when the lockdowns end. The RBA has consistently said the policy is based on a rebound once lockdown conditions ease, but has also suggested there could be other scenarios.”

“The RBA is aware that the New South Wales state government has a different attitude towards lockdowns and is more inclined to open the economy than in Victoria, where the government has been much stricter.”

“The RBA also believes its existing policy settings are sufficiently accommodative to help drive the recovery, and any further monetary easing would have a lag of around six months before it took effect. By that time, the RBA is expecting that all of Australia will be out of lockdown.”

Market reaction

AUD/USD defends minor bids below 0.7350, as the US dollar recovery falters. However, the Delta covid variant concerns continue to limit the upside attempts in the aussie.

The spot is now trading at 0.7339, up 0.07% on the day.