Daily Commentary BY THE CURVE TEAM –

RBA Minutes Give Insight to the Outlook

17th of June, 2020

Minutes from the June Board meeting of the RBA reaffirmed their stance on monetary policy, but they left the door open for a slight change in their outlook.

As was widely expected by the market, minutes from the June board meeting was for the most part a near mirror image of recent months with a strong reaffirmation of their stance on monetary policy. The board recognised that economic activity has seen significant contractions over recent months but is beginning to return. The board did concede that the Australian experience throughout the virus and downturn is likely to be significantly better than many countries around the globe.

Whilst much of the information on global events and data is well known, in a surprisingly positive tone the board stated;

“the Australian economy was experiencing the biggest economic contraction since the 1930s. A very large number of people had lost their jobs or were working zero hours, household spending had weakened considerably and some investment was being deferred or had been cancelled. Notwithstanding these developments, it was possible that the downturn would be shallower than earlier expected.”

 For the upside risk to the outlook to eventuate the board made it clear that “substantial, coordinated and unprecedented easing of fiscal and monetary policy in Australia was helping the economy through this difficult period. It was likely that this fiscal and monetary support would be required for some time. “

With monetary policy measures the board has already implemented creating the most accommodating conditions for new borrowers in history, there is upside risk to the outlook. However, for that to eventuate and borrowers to have enough confidence in the outlook to draw down on their credit lines and invest in structural reforms by government will almost certainly be needed.

In the US, the Trump administration indicated a strong possibility of a large scale package to support infrastructure projects, especially in regional areas. The package with a likely total value of $1 trillion USD would be one of the largest on record. The announcement comes just under 5 months out from the next presidential election.

The Australian market sees no major data releases today. The next market moving release is the Labour Force data for May, which is out tomorrow.

Matthew Dunshea

Client Relationship Manager