Daily Commentary BY THE CURVE TEAM –

RBA Reaffirms policy Stance as Wage subsidies Extended

July 22, 2020

Yesterday the RBA explained their thinking on unconventional monetary policy via their minutes for the July meeting and Governor Lowe’s speech to the Anika Foundation. This followed announcements made by the government to extend JobKeeper and JobSeeker payments with adjustments to the amounts and conditions of payment.

With the RBA’s conventional mechanism of lowering the cash rate to stimulate the economy exhausted, the role of the RBA has expanded. In their monthly updates, they not only update the public on the cash rate, but also their government bond buying programme, the Term Funding Facility and Exchange Settlement Balances earning 15 points less than the cash rate rather than the conventional 25 points less.

The RBA yesterday re-affirmed their belief that their current policies were sufficient to stabilise and stimulate the economy, in so far as the RBA can stimulate the economy. They addressed other methods they could utilise, such as foreign exchange intervention, negative interest rates and directly financing government spending. Their conclusion was that all these were not relevant to Australia currently.

It was re-iterated though that although the RBA will do what it can to get inflation to 2-3% and full employment, it can not bear all the work. In his speech yesterday, Lowe said:

‘Debt across all levels of government in Australia, relative to the size of our economy, is much lower than in many other countries and it is likely to remain so. As I said before, the Australian governments can borrow at the lowest rates since Federation. So the public balance sheet is well placed to smooth out the shock to private incomes and support the economy through the pandemic.’

Which provides an explicit endorsement of government spending during the pandemic.

Right on cue, the Morrison government announced that they would continue the JobKeeper and JobSeeker payments beyond their September deadline, albeit at lower levels and with more stringent conditions. The JobKeeker payment will be tiered, so those who worked under 20 hours prior to the pandemic will receive $750 per fortnight from October to January then $650 per fortnight form January to March. Whereas employees who worked over 20 hours prior to the pandemic will receive $1200 from October to January and $1000 from January to March. Both were reductions from the $1500 per fortnight that will be maintained until the end of September.

The JobSeeker payments will be reduced from $1100 per fortnight from the end of September. Those on the payment will also need to prove they applied for 4 jobs in the month as opposed to the current expectation of no jobs.

The links to the RBA minutes and Governor Lowe’s speech are below:



Josh Stewart

Client Relationship Manager