The RBA minutes for the May minutes reaffirmed our view that further expansion in the asset purchase program would be announced later this year. The most likely timing for the announcement would be July.

Domestically, the members noted that the economic was in the transition from recovery to expansion. The momentum was stronger than previously anticipated. The anticipated that GDP would have returned to its pre-pandemic level in 1Q21. The minutes also mentioned about the upward revisions in the economic assessment. While staying cautious about the uncertainty of household consumption, the baseline scenario remained that household consumption would be supported “by the further lifting of restrictions on services, a stronger outlook for employment and thus labour income, wealth effects from higher housing prices, and reduced uncertainty generally”.

Policymakers acknowledged that the outlook for wages and inflation remained soft. Yet, they indicated that risks were in both directions. As noted in the minutes, “because of inertia in wage- and price-setting practices, it was possible that price pressures could be slow to build even if spare capacity were absorbed more quickly than expected”. Alternatively, “higher commodity prices, persistent supply chain bottlenecks and firms’ reduced ability to address labour shortages through access to workers from abroad could mean that wages growth and inflation picked up earlier and more rapidly than expected as the economy continued to expand”.

On the housing market, the central bank reiterated that “given the environment of strong demand for housing, rising housing prices and low interest rates, members agreed on the importance of maintaining lending standards and carefully monitoring trends in borrowing”.

All monetary policy measures were left unchanged in May. The minutes reaffirmed that a rate hike was unlikely “until 2024 at the earliest”. Meanwhile, the members would “consider whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity” in July. Concerning QE, the members suggested they were “willing to undertake further bond purchases if doing so would assist with progress towards the Bank’s goals of full employment and inflation”. All actions are dependent on incoming economic data. However, as the unemployment rate (5.6%) has stayed markedly above RBA’s long-term target of 4-4.5%, we retain our view that an extension of AUD100B in QE would be announced in July.