Daily Commentary BY THE CURVE TEAM –

RBA Gives Glimpse Into The Future

6th of May, 2020

The RBA has given us a glimpse into the future ahead of their quarterly update on Friday.

With the current calibration of monetary policy expected to remain unchanged, the focus of yesterday’s RBA board meeting was on what they had to say about the outlook. While the RBA said there remains “considerable uncertainty about the outlook” they looked at a range of scenarios of how things could play out.

According to yesterday’s post meeting statement, the RBA’s “baseline scenario, output falls by around 10 per cent over the first half of 2020 and by around 6 per cent over the year as a whole.” That means that after falling by 10% in the first half of this year, growth is expected to increase by around 5.5% over the second half of this year with the bounce easing back to 6% for the 2021 calendar year.

The net result of this means that the economy at the end of 2021 will still be smaller than it finished 2019. As a result, the spike in unemployment is expected to take time to come back down.

According to their estimates, the RBA expects the unemployment rate to rise to 10% during the lockdowns. It is expected that it will still be around 7% at the end of 2021. With the government admitting that the uptake of the Jobkeeper program has captured around 1 million less employees than expected, there could be upside risks to those un-employment forecasts.

The make up of the economy over the months and years ahead is still unclear. The RBA will provide far more detail in the Quarterly Statement on Friday where they are likely to reveal a number of scenarios.

David Flanagan

Director - Interest Rate Markets