Daily Commentary BY THE CURVE TEAM –

RBA Minutes Hints at More Action

16th of December, 2020

Despite the improving economic outlook the RBA continues to be willing to ease further.

The RBA acknowledged that the likelihood of the downside risks to the economy had decreased with positive vaccine news. However, they still believe employment, growth and inflation will have a way to go before it recovers towards pre pandemic levels.

This means ‘the board remains committed to do more if necessary’, indicating their bias is to ease further before tightening. Analysts have begun predicting the next easing, especially with the RBA saying ‘members agreed to keep the size of the bond purchase program under review’.

Already Westpac’s Bill Evans is predicting an expansion of QE of $100 billion mid next year followed by another $100 billion when that finishes. Negative rates appear to be further back on the agenda, with both the Bank of England and Reserve Bank of New Zealand looking less likely to go negative.

Also in the minutes was a reference to a financial innovation- Central bank digital currencies, being researched by the RBA. The premise is that retail clients can hold completely risk free deposits with the central bank rather than with banks. A link to the RBA’s research paper on the topic is at the end of the commentary.

Payrolls data released yesterday was once again strong, with payrolls up 0.7% for the four weeks to November 28. This leaves payrolls only 2% below pre Covid levels and bodes well for employment numbers released tomorrow.

Victoria continues to lead the rise, up 1.3%. They remain 4.3% lower than pre Covid, which poses an immediate upside to payrolls over the next few months. Teenagers continue to dominate payrolls growth, up 8.3% for the latest read.

RBA Research paper on central bank digital currencies:

https://www.rba.gov.au/publications/bulletin/2020/sep/retail-central-bank-digital-currency-design-considerations-rationales-and-implications.html

Josh Stewart

Associate - Money Markets