Daily Commentary BY THE CURVE TEAM –

RBA Focused on Positives

6th of February, 2020

The RBA hopes that the “gentle turning point” that the economy is passing through continues.

Governor Lowe continued with the positive tone to the outlook in his speech to the National Press Club yesterday. When his speech, titled ‘The Year Ahead’, turned to the Australian economy, he said “As I have been saying for some time, we are passing through a gentle turning point for the better.”

The recent fall in the unemployment rate and uptick in the headline pace of inflation are what Governor Lowe is referring to when he talks about a turning point. He is also hoping that already record low interest rates will allow households to get their balance sheets into a stronger position, which is in turn expected to eventually lead to increased consumption.

His optimism comes despite a number of headwinds facing the domestic economy. While some have been at play for a some time now, others include the recent natural disasters and the Coronavirus outbreak. Although these latest developments are now expected to have an impact on the economy over the short term, Lowe remains steadfast in the outlook, saying:

“Australia’s economic fundamentals remain very strong and they provide a solid foundation for us to be optimistic about our future.”

Following the RBA’s meeting on Tuesday and yesterday’s speech, the market has further walked back its expectations of further rate cuts from the RBA. The market now has one more cut priced in by the end of the year with little chance of a follow-up. That is a sharp shift from nearly two cuts being priced in prior to Tuesday’s meeting.

We will take a deeper look into the outlook and what it means for monetary policy in next week’s Curve Monthly Insights.

David Flanagan

Director - Interest Rate Markets