Daily Commentary BY THE CURVE TEAM –

RBA Leave Rates on Hold

4th of December, 2019

As was widely expected by the market, the RBA Board left the cash rate on hold yesterday with the chance of future rate cuts still on the table.

With market pricing yesterday providing a slim chance of any change in the stance of monetary policy, the RBA delivered an expected result and maintained the cash rate at 0.75%. Given there is no January meeting, the cash rate will be on hold until February.

The statement released after the meeting was also broadly in line with recent rhetoric. Governor Lowe once again made clear that the market should expect interest rates to remain low for the foreseeable future. As always the last paragraph of the statement was the key insight into the medium term outlook for monetary policy:

“Given these effects of lower interest rates and the long and variable lags in the transmission of monetary policy, the Board decided to hold the cash rate steady at this meeting while it continues to monitor developments, including in the labour market. The Board also agreed that due to both global and domestic factors, it was reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. The Board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”

Prior to the meeting yesterday, several key data releases were slightly better than market expectations. GDP partials released yesterday were stronger with net exports resulting in the first successive months with current account surpluses in 46 years. Government spending for Q3 which makes up about a quarter of the economy was stronger. That has lead some of the market participants to slightly upgrade their forecasts of today’s GDP number (released at 11:30). The consensus is for a 0.5% Q/Q and a 1.7% Y/Y reading, which is slightly below the RBA forecasts.

Matthew Dunshea

Client Relationship Manager