Reserve Bank of Australia Expected to Maintain Policy and Upgrade Expectations

Markets are anticipating the upcoming monetary policy statement by the Reserve Bank of Australia (RBA), which is due on Tuesday.

The RBA has been adopting a relatively dovish tone amid a rise in commodity prices, with the economy achieving a higher than expected recovery, but it is yet to be seen whether its next meeting will see a change in tone.

Moreover, the statement is expected to see an upgrade in economic expectations.

The majority of market expectations lean towards the Australian central bank maintaining the current policy and guidance with rates near record low levels until 2024 or beyond.

The main rate will likely be maintained at 0.10%.

Analysts see that the RBA does not favor a rise by the Australian Dollar (AUD), as local currency appreciation as seen as a challenge to achieving the employment and inflation targets.

Speaking of inflation, the Reserve Bank of Australia expects a temporary surge in consumer prices as the recovery from the impacts of the coronavirus pandemic makes progress and demand improves compared with the corresponding period of 2020.

The reserve bank recently expected unemployment to drop to its lowest level since 2008 at 4.5 % and unemployment to fall to 5% by the end of the year.

In addition, RBA upgraded its economic growth forecast to 4.75% for 2021, from a previous estimate of 3.5% in February.

The Australian Dollar (AUD) actually rose on Monday against its U.S. counterpart (USD), maintaining its second consecutive monthly rise. The AUD/USD pair is trading higher for the day by 0.31% at 0.7736.

Today, the Australian Securities Exchange (ASX) finished the first session of the week and the last of May lower and below the record high levels that the main index reached earlier in the session.

Australia is seeing renewed concerns about the pandemic amid an increase in the number of new cases in Victoria.

Similarly, the readings of economic output indicators for the first quarter (Q1), which are set to be released on Wednesday, are highly anticipated.

Not far away from Sydney, the Reserve Bank of New Zealand (RBNZ) last week indicated that it could be raising interest rates as early as the middle of 2022.

Accordingly, RBNZ became one of a few central banks hinting at tightening their monetary policy, as the world economies recover from the coronavirus pandemic.