RBA: On hold for the time being – UOB

Economist Lee Sue Ann at UOB Group reviewed the decision by the RBA to leave rates unchanged.

Key Quotes

“Even though the decision was widely expected and a non-event, the accompanying statement was a slightly longer-than-usual one, with RBA Governor Phillip Lowe noting that bond purchases by the central bank had so far totalled around $50 billion, and whilst this had been scaled back for now, the RBA is “prepared to scale-up these purchases again and will do whatever is necessary to ensure bond markets remain functional and to achieve the yield target for 3-year AGS”. The RBA also decided to broaden the range of eligible collateral for these operations to include Australian dollar securities issued by non-bank corporations with an investment-grade credit rating.”

“The RBA said that it will keep the cash rate at 0.25% “until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band”. As for three-year yields, the target will be kept “until progress is being made towards the goals for full employment and inflation”.

“So far, the Australian government and the RBA have responded with a fiscal-monetary injection worth around 16.4% of GDP.”

“Meanwhile, authorities are moving to relax some restrictions as infection rates in Australia slow. The national cabinet is meeting this week, with an announcement on a new baseline for restrictions due on Friday.”

“Nonetheless, the RBA had considered a range of scenarios, with economic output falling by around 10% over the first half of 2020 and by around 6% over the year as a whole, in the most likely scenario. Under this scenario, the RBA also expects the unemployment rate to peak around 10% in the coming months and stay above 7.0% at the end of next year. These scenarios will be discussed in the Statement on Monetary Policy (SOMP), to be released later this week on Friday (8 May).”