Daily Commentary BY THE CURVE TEAM –

RBA Eases Further

3rd of February, 2021

The RBA has pulled the trigger on further easing of monetary policy while being more specific on forward guidance.

More expansive QE had been touted by leading economists for some months now. However, it had not necessarily been expected to be announced so soon.

An additional $100 billion of government bonds will be purchased when the initial $100 billion has run its course by the end of April. $5 billion a week will be purchased at that point, which is the same rate as currently being purchased.

Additionally, the RBA were more specific in their forward guidance, with 2024 the earliest they expect to increase the cash rate from 0.10%. Three years has been the timeframe the RBA has been referring to, so by declaring 2024 they are not iteratively pushing back the date.

The motivations for the move are the continued slack in the labour market, with unemployment still expected to be 5.5% by the end of 2022. This will limit wage growth and by extension inflation.

Additionally, there are less conventional motivations for the further easing. Usually, and as referenced in yesterday’s statement, the lowering of rates to expand credit growth and lower financing costs is the primary motivation for the RBA’s decision.

It is now apparent that the Australian Dollar has taken on new importance to the RBA. In the statement the RBA said ‘the exchange rate has appreciated and is in the upper end of the range of recent years’ and that the RBA actions have ‘contributing to a lower exchange rate than otherwise’.  

Also, usually a secondary motivation, the RBA is now set on ‘supporting household and business balance sheets’.

Governor Lowe speaks today, which should provide more colour on the motivations for the RBA’s decision yesterday. The full statement from yesterday is below.

https://www.rba.gov.au/media-releases/2021/mr-21-01.html

Josh Stewart

Associate - Money Markets