Daily Commentary BY THE CURVE TEAM –

RBA Hold Firm on Policy

8th of July, 2020

The RBA held firm on monetary policy yesterday, but the key insight was their view on the outlook.

As was widely expected, the policy decision of yesterday’s RBA June Board Meeting was a reaffirmation of their currently policy setting. The board confirmed their view once again that the cash rate will not increase until they are confident inflation will be within the target band and significant inroads towards full unemployment have been made.

The key insight from the meeting was that the RBA still see high levels of uncertainty in the outlook for the economy:

Leading indicators have generally picked up recently, suggesting the worst of the global economic contraction has now passed. Despite this, the outlook remains uncertain and the recovery is expected to be bumpy and will depend upon containment of the coronavirus.”

The recent spike in case numbers in Melbourne is testament to the bumpy road ahead. The hope is that the outbreak is quickly and safely contained but the reality is that it is unlikely to be the largest outbreak.

This period has likely resulted in a structural change to the behaviour of investors, consumers and businesses alike with the statement saying:

“Notwithstanding the signs of a gradual improvement, the nature and speed of the economic recovery remains highly uncertain. Uncertainty about the health situation and the future strength of the economy is making many households and businesses cautious, and this is affecting consumption and investment plans. The pandemic is also prompting many firms to reconsider their business models. As some businesses rehire workers as demand returns, others are restructuring their operations.”

Reports have circulated in the press this morning that one of the key factors in the short-term outlook is set to be extended. For many households whose income was reduced by the lockdown measures, repayment deferrals on home loans were offered by the banks until September. The impending September cliff now appears to be delayed until as far as March 2021 on a case by case basis.

With little data out today, the unfolding of this news story will be the main component of today’s economic news. If the reports are indeed true we would also expect to hear from the government as they were involved in the coordination of the loan deferral programs in March.

Matthew Dunshea

Client Relationship Manager