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The Reserve Bank of Australia still sounded dovish when it kept policy settings unchanged today. Economists at Capital Economics think it will expand its bond purchase program by another $100 B next month.

RBA didn’t depart from the dovish tone of May’s Statement on Monetary Policy

“The RBA’s decision to keep interest rates and the parameters of its bond purchase program unchanged came as no surprise. The statement was little changed compared to May. On the positive side, it acknowledged that the labour market has tightened faster than anticipated and that there were reports of labour shortages in some parts of the economy. On the negative side though, the Bank noted that ‘significant outbreaks’ of the virus remained an ongoing source of uncertainty.”

“We stick to our view that the Bank will expand its bond purchase program by another $100 B next month while keeping the weekly pace of purchases constant at $5 B.”

“We expect the Bank to start tapering its asset purchases from the beginning of next year and to start hiking rates by end-2023. That view is more dovish than what the financial markets have priced in and suggests that the Australian dollar will remain unchanged at around $0.78 over the next couple of years.”