Daily Commentary BY THE CURVE TEAM –

RBA Defiant on Outlook

10th of February, 2020

The RBA confirmed their take on the outlook in Friday’s quarterly Statement on Monetary Policy and Governor Lowe’s appearance before parliament.

Lowe rounded out a big week of RBA activity on Friday, starting with his semi-annual appearance before parliament on Friday morning. His opening statement was consistent with the narrative presented in his post-Board meeting statement and subsequent appearance at the National Press Club on Wednesday.

Despite ongoing concerns and the new risks presented by the recent natural disasters and Coronavirus, the RBA is confident that the economy has reached a gentle turning point. It hopes that the stimulatory effects of previous policy actions, both interest rate and tax cuts, which are still working their way through the economy, will see this trend continue.

As a result, the hurdle rate for another cut at this stage is high. More specifically, the RBA said that:

“If the unemployment rate were to be moving materially in the wrong direction and there was no further progress being made towards the inflation target, the balance of arguments would tilt towards a further easing of monetary policy”

So on that basis, rates could be expected to be on hold until the data deteriorates.

That is somewhat at odds with the RBA’s updated forecasts from the quarterly Statement on Monetary Policy. We take an in-depth look at the outlook for monetary policy in Curve’s latest Monthly Insights due out tomorrow.

David Flanagan

Director - Interest Rate Markets