Daily Commentary BY THE CURVE TEAM –

RBA Doubles Down

4th of November, 2020

As expected the RBA yesterday moved to a more accommodative setting of monetary policy.

The RBA made a number of changes to each of the policy leavers at its disposal while finally turning to QE as it looks to support the economy. Adjustments were made to the current settings of monetary policy including:

  • a reduction in the cash rate target to 0.1 per cent
  • a reduction in the target for the yield on the 3-year Australian Government bond to around 0.1 per cent
  • a reduction in the interest rate on new drawings under the Term Funding Facility to 0.1 per cent
  • a reduction in the interest rate on Exchange Settlement balances to zero

They also turned to outright quantitative easing as we have seen from other central banks . A minimum of $100B in purchases of 5 to 10 year government and semi government bonds is to be carried out over the next six months.

Despite recent data being better than expected in recent times, the RBA is concerned over the medium term outlook. This will be reflected in their updated forecasts that will be released on Friday as part of their Quarterly Statement on Monetary Policy.

Unemployment is now expected to peak lower and growth over the near term be a little stronger than was previously expected. However, beyond that the recover is expected to weaker. That in itself is the dilemma the RBA faces when they only have cyclical tools to deal with structural problems.

We will take a deeper look into monetary policy and the outlook in next week’s Curve Monthly Insights after the RBA releases their Quarterly Statement on Friday.

David Flanagan

Director - Interest Rate Markets