Daily Commentary BY THE CURVE TEAM –

RBA Minutes Reinforce New Focus

18th of November, 2020

The RBA Minutes for the November board meeting emphasise a subtle shift in focus.

Prior to the pandemic, the cash rate as a means to maintain inflation of 2-3% were the focal points of monetary policy in Australia. November’s minutes emphasise that the focus has broadened.

Alongside inflation, employment has risen as a priority. This alludes to a second shift of the RBA, which is being far more co-ordinated with the government.

Governments consistently cite employment as a priority, which has clearly rubbed off on the RBA. The RBA recently have described reducing unemployment as a ‘national priority’ and Lowe’s speech on Monday admitted that employment was guiding policy more so than in the past.

Co-ordination of government and the RBA was evident with the RBA timing their policy change with the government’s budget. The RBA said ‘having the various arms of policy all taking steps in the same direction would deliver a greater impact than the sum of the individual parts’.

Quantitative easing targeting 5-10 year government bonds marks the final shift in focus for the RBA. Given this will be the first time in recent history that Australia will use QE, its effects will be closely monitored by the RBA to determine its efficacy.

Payrolls for the 4 weeks to October 31 were released yesterday. They rose 0.3%, which leaves them 3% below pre Covid levels.

Encouragingly, the rise was broad based across the states. Victoria was the stand out, rising 1.2%, which is hopefully a prelude of further improvements as the state unwinds their lockdown measures.

Under 20s payrolls are a notable improver, up 5.5% for the month and 13.8% higher than pre Covid. Under 70s remain 12.2% lower.

The NSW budget was also released overnight. Key policies included $100 worth of vouchers for food and entertainment uses for all people over 18 and the implementation of a land tax as an alternate to stamp duty.

Today, wage price data will be released for Q3. This is a key metric being monitored by the RBA, as they have cited, they don’t expect general prices to increase until there is upward pressure on wages. Also today, RBA Governor Lowe will be on a panel at The Australian’s Strategic Forum 2020.

Josh Stewart

Associate- Money Markets