Daily Commentary BY THE CURVE TEAM –

RBA Minutes Released Today

15th of September, 2020

The expansion and extension of the TFF at the beginning of the month and the potential for further easing will highlight the RBA Minutes for September released today.

Since March updates from the RBA have been uneventful, as their policy stance has remained the same. This month the RBA tweaked their stance by making another $57 billion available to ADIs via the Term funding Facility from October to June.

The reasoning for the change will be of interest. Already there is a vast quantity of liquidity in the financial system, so on the surface the extra liquidity made available seems superfluous.

Also to be monitored closely is the potential for further easing either next month or before the end of the year. Reports continue to circulate about the RBA’s intention to ease further

Whether there will be further easing and in what form will be the key questions. Again, liquidity conditions are already extremely accommodating and the RBA over the last few months has reiterated that the Australian dollar and government debt interest rates are at reasonable levels. Therefore, the narrative to justify a further easing will provide new content.

One option the RBA have to ease further would be expanding the target interest rate for Australian government bonds out beyond just the 3 years. Alternatively they could lower the cash rate to 0.10% or even lower the Term Funding Facility rate lower than 0.25%.

Independent of the RBA, sentiment for the economy is beginning to turn positive as the likelihood of a vaccine by early next year increases. Astrazeneca and Oxford’s trials that had been halted briefly have resumed, and there is more confidence a vaccine will be ready by the end of the year.

The Australian government has already arranged a mass purchase of the Oxford vaccine should it be successful. If it is dispersed early next year, this will coincide with very accommodating monetary policy, which could set the stage for a sugar hit for the economy.

House prices especially could be set to recover the modest falls during the pandemic. National house price data for Q2 is released today which is expected to confirm a decrease of 1.3%. With the shift to working from home, rural areas are expected to show more strength than cities.

Josh Stewart

Client Relationship Manager