Daily Commentary BY THE CURVE TEAM –

RBA Issues Key Updates

5th of May, 2021

There were multiple key updates flagged in the RBA decision.

With the economic recovery tracking much faster than RBA forecasts, the RBA have updated their forecasts accordingly. The full forecasts will be released on Friday when the Statement of Monetary Policy is released, but in the meeting yesterday the RBA noted that employment is expected to be 5% by the end of the year and 4.5% by the end of 2022.

This is down from an expectation of 6% by the end of 2021 and 5.5% by the end of 2022, so well ahead of the February forecasts. Inflation forecast for 2022 remain at 1.5%, but are slightly up for 2023, with 2% by mid-2023 expected up from the 1.75% expected in February.

Despite the updates, the RBA still believe an increase in the cash rate is ‘unlikely to be until 2024 at the earliest’. This phrasing is slightly different to previous meetings where the RBA stated they ‘do not expect’ the cash rate to be increased before 2024.

The final key update from the statement was that the July meeting will be when the RBA consider whether to extend QE and change the 3-year government bond yield target from the April bond to the November bond. There was speculation these decisions would be made in August, so the announcement will be earlier than expected.

Also, yesterday, loan approvals and trade data for March were released. Loan approvals were up 5.5% for the month, which follows strong credit and house price growth.

There was a drastic shift in investor to investor led gains, with investor loans up 12.7% for the month, the highest in 18 years and leaves them 54.3% higher for the year. In contrast, owner occupiers were up 3.3%, which still has them 55.6% higher over the year. The end of HomeBuilder grants has the potential to take the heat out of lending, but the surge in investor activity could well offset this.

The trade balance fell $2 billion to $5.6 billion, with imports down 4.3% and exports down 1.7%. Easter related spending is speculated to have led to the lift in imports.

As usual, resources had an outsized effect on the export numbers. Gold and coal exports were down 25% and 11% respectively, with the latter being affected by floods in NSW. Metal ores rose $0.3 billion and account for 40% of total exports, so offset the declines elsewhere.

Josh Stewart

Associate - Money Markets