Four take-aways from the RBA’s October meeting
The RBA held its October board meeting today. Though there wasn’t as much movement as we expected, there were four key take-aways:
1. The RBA left the cash rate on hold
The RBA left the cash rate on hold at 0.25% for the seventh month in a row. With the RBA recently explicitly stating that its forecast outlook for inflation and employment is not consistent with its objectives – and regularly running through a list of options for further policy easing over the last month or so – we had thought it would move today with another rate cut to 0.1%. Still, our base case remains that the RBA will cut the cash rate to 0.1%, now at its November meeting.
2. Recovery is happening, but it’s uneven
The RBA noted again that a global economic recovery is underway, but it remains uneven and dependent on containing the virus. While a recovery is also underway in most of Australia, the RBA sees that it is likely to be uneven and bumpy.
3. The RBA will do more
Given the uncertainty around the pace of recovery, the RBA reiterated its commitment to do “what it can” to support jobs, incomes and businesses and its commitment to “not increase the cash rate until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3% target band.”
The central bank also repeated its easing bias by again noting that it “continues to consider how further monetary measures could support jobs as the economy opens up further.” Consistent with its focus on unemployment it tweaked the end bit of that statement from support for the “recovery” to support for “jobs”. The emphasis on jobs was further underlined by the RBA’s comment that it “views addressing the high rate of unemployment as an important national priority.”
Most of the effort to boost jobs will fall to fiscal policy and the Budget, but the RBA can also further aid the process and we think it will.
4. Unemployment will peak (a bit) lower
While it now sees the unemployment rate peaking at a lower rate than earlier expected (10%), the RBA notes that “unemployment and underemployment are likely to remain high for an extended period.”
What do we think is next?
As mentioned, our base case remains that the RBA will cut the cash rate, as well as the Term Funding Facility rate and the three year bond yield target to 0.1%. We think the RBA will make these moves next month after it has updated its forecasts, which will likely show that its employment and inflation objectives are still not going to be met over the next two years at least.
Over the next six months we also see the RBA moving towards inflation average targeting and therefore tweaking its forward guidance to say that it won’t raise the cash rate until full employment is reached and inflation is sustainably within the 2-3% target band. And we also see it adopting a more traditional quantitative easing program extending bond buying beyond the three-year bond.
Head of Investment Strategy and Economics and Chief Economist, AMP Capital Sydney, Australia
While every care has been taken in the preparation of this video, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This video has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.
Original Author: Produced by AMP Capital and published on 06/10/2020 Source
You may also like
- Market Update 24 July 2020Investment markets and key developments over the past weekGlobal share markets started the past week off strongly ...
- AMP Chief Economist Shane Oliver delivers the October 2020 economic market update with particular focus on what’s happening with property in...
- Oliver’s Insights – Investment markets and key developments over the past week Share markets collapsed over the past week as concerns about...
- The Reserve Bank board has cut interest rates again by 0.25% at their March meeting, their fourth such cut since June last year.The move com...
- 4 reasons the share market could hold up against COVID-19There are very good reasons for the faith that investors are placing in equities ma...
- Common tax mistakes for SMSFs with rental propertiesIn our recent article we covered tax relief concessions that could be considered where S...
- Four challenges for companies in the face of COVID-19We believe that one of the most violent 50-day rallies in market history is quite diffi...
- COVID-19 and rental propertyAMP Capital looks at what the coronavirus outbreak means for Australian rental property investorsAustralians lov...