Daily Commentary BY THE CURVE TEAM –

Budget and RBA Day

6th of October, 2020

Both the budget and RBA decision announced today will have ramifications for the economy and interest rates.

Starting with the budget, early media releases indicate incentives to support jobs and infrastructure will be the key themes. Direct spending will focus on wage subsidies for young people and apprentices which will indirectly replace the current JobKeeper and JobSeeker wage subsidies.

As we wrote about last week, there will be manufacturing grants for six industries and states will have access to infrastructure grants that will lapse if not spent. In addition to these direct payments, there are multiple tax incentives to encourage investment and training employees.

Supporting household and business cash flow also appears to be a priority for the government. Personal income tax cuts are set to be backdated and businesses will be able to pay less tax if they are currently losing money.

The risk of all these announcements is much of the onus is being put on the private sector to take advantage of the new policies. Should the current lack of demand in the economy persist then the private sector may avoid new investment or hiring new staff.

The RBA is also expected to keep their policy the same today. However, November is expected to see the cash rate and 3-year government bond yield target go to either 10 or 15 basis points and the start of government bond purchases further along the curve.

On Friday last week a fall of 4% in retail sales for August was confirmed. This was slightly better than the 4.2% fall expected based on and of itself did not pose too much concern for the economy.

Josh Stewart

Client Relationship Manager