Westpac ups forecast for third round of RBA QE

By Sophia Rodrigues

Westpac has revised its forecast for RBA's Bond Purchase Program, now expecting the second A$100 billion bond-buying to be followed by a third A$100 billion program (up from A$50 billion previous expectation).

Westpac has maintained the forecast for fourth round of bond purchase at A$50 billion, chief economist Bill Evans wrote in a note.

Westpac expects the Fed's QE policy to be a very important signpost for the RBA.

"It is unlikely that the FED will have made sufficient progress towards its goals by October this year to warrant scaling back its asset purchases. Were the RBA to taper it will expose the AUD and signal to the market that it has begun tightening. Such a signal could expose the recovery to unnecessary pressure and cast doubt on the credibility of any forward guidance the RBA may be offering," the note said.

Evans discussed the possibility (not his central call) that the RBA could revert to a more flexible program from October by committing to an open ended monthly target of, say, A$20 billion, (in line with the current purchase pace).