RBA: Door open to further easing? – UOB

Economist at UOB Group Lee Sue Ann assessed the latest RBA event, where the central bank left its monetary conditions unchanged.

Key Quotes

“The Reserve Bank of Australia (RBA) decided to maintain its current policy settings in October, as expected, including the targets for the cash rate, the yield on 3-year Australian Government bonds, and the parameters for the expanded Term Funding Facility (TFF).”

“RBA Governor Philip Lowe said today’s decision was based on the uneven recovery of the global economy due to the COVID-19 pandemic. Lowe also said the RBA and the Government would need to continue supporting the economy ‘for some time given the outlook for the economy and prospect of high unemployment’.”

“The decision to hold today suggests that the RBA wants to assess the budget in detail before making a decision about further moves. Nonetheless, it is noteworthy that the RBA continues to signal further monetary easing is likely.”

“We now see a high change of the RBA easing policy further by cutting the cash rate, 3-year yield target and TFF rate by 15bps to 0.10% (from the current historic-low of 0.25%). The remuneration on Exchange Settlement (ES) balances, which is already at 0.10%, is likely to be either unchanged, or cut slightly, so as to remain positive. We also expect the RBA to announce further QE purchases ahead. We deem fiscal policy to be crucial in supporting the economic recovery… Meanwhile, it is worth noting that the RBA continues to remain reluctant on negative rates (‘empirical evidence on negative rates is mixed’) and to intervene in the exchange rate (‘AUD broadly aligned with its fundamentals’).”