Daily Commentary BY THE CURVE TEAM –

Prelude to RBA Decision

26th of October, 2020

There will be multiple data updates this week prior to the RBA decision next week.

Of most significance this week will be CPI data for Q3 out on Wednesday. Two weeks ago, Governor Lowe announced that the RBA would refer to actual inflation rather than forecasted inflation in their decision. The Q3 data will be the first inflation data since the announcement.

CPI for Q3 will almost certainly miss the RBA’s target of 2-3%. Already the RBA is expected to cut their interest rate targets and begin quantitative easing next week, so low inflation numbers will provide more motive.

Also released this week is credit data for September on Friday. This will also be of interest to the RBA, as credit has gone backwards the last 3 months. The RBA views a pickup in lending as integral to an economic recovery, so continued weakness would be another spur to lower rates further.

Business confidence data for Q3 will be released on Thursday. This will provide an update on the two paced nature of the economy, with Victoria in lockdown for much of the survey period.

The IMF added their two cents on the Australian economy over the weekend. Harald Finger, IMF mission chief to Australia, agreed with the federal government’s decision to taper back JobSeeker and lower taxes in its recent budget.

He did call for a further reduction to direct taxes, namely the corporate tax rate, and an increase in indirect taxes such as the GST. Government debt levels were viewed as manageable and he urged the government to spend big on retraining and infrastructure.



Josh Stewart

Associate- Money Markets