RBA Fronts Parliament and Confirms Easing Bias

9th of August, 2019

After a volatile week in markets the updated forecasts from the RBA later today should provide some clarity to the outlook.

Overnights trading session offshore was easily the most subdued of a very volatile week in markets. The quieter night comes ahead of key updates by the RBA today. Governor Lowe spoke before the House standing Committee on Economics (9:30am) with the release quarterly Statement on Monetary Policy still to come (11:30am).

In his Statement this morning to the House, Governor Lowe reiterated that their forecast for growth in 2020 is unchanged at 2.75% and indicated the RBA saw the current market events as a “turning point” and GDP should strengthen from here. He maintained the easing bias of recent statements but in a much more mooted tone.

Unsurprisingly, the RBA once again called on Government to provide stimulus to the economy through further spending on productive infrastructure. In a rather direct suggestion, Governor Lowe made the comment that borrowing rates for government are at all time lows, so the cost of borrowing to fund such infrastructure is relatively cheap.

Reading between the lines, Governor Lowe highlighted a key point that should the government borrow at circa 2% to fund the infrastructure they would effectively be borrowing below the RBA’s forecasts for inflation over the medium term forecast horizon.

Matthew Dunshea

Client Relationship Manager