RBA holds for July

See the latest Australian dollar analysis here:

Macro Afternoon

by Chris Becker

At its latest meeting the Reserve Bank has held its cash rate at the record 0.25% low.

Australian dollar flitted immediately with the 69.50 level but is coming back after tapping out just below the 70 handle earlier today (and in time with my “Aussie could go to 80cents” post!)

Reserve Bank Board Meeting – Monetary Policy Decision

At its meeting today, the Board decided to maintain the current policy settings, including the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points.

The global economy has experienced a severe downturn as countries seek to contain the coronavirus. Many people have lost their jobs and there has been a sharp rise in unemployment. Leading indicators have generally picked up recently, suggesting the worst of the global economic contraction has now passed. Despite this, the outlook remains uncertain and the recovery is expected to be bumpy and will depend upon containment of the coronavirus. Over the past month, infection rates have declined in many countries, but they are still very high and rising in others.

Globally, conditions in financial markets have improved. Volatility has declined and there have been large raisings of both debt and equity. The prices of many assets have risen substantially despite the high level of uncertainty about the economic outlook. Bond yields remain at historically low levels.

In Australia, the government bond markets are operating effectively and the yield on 3-year Australian Government Securities (AGS) is at the target of around 25 basis points. Given these developments, the Bank has not purchased government bonds for some time, with total purchases to date of around $50 billion. The Bank is prepared to scale-up its bond 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 yield target will remain in place until progress is being made towards the goals for full employment and inflation.

The Bank’s market operations are continuing to support a high level of liquidity in the Australian financial system. Authorised deposit-taking institutions are continuing to draw on the Term Funding Facility, with total drawings to date of around $15 billion. Further use of this facility is expected over coming months.

The Australian economy is going through a very difficult period and is experiencing the biggest contraction since the 1930s. Since March, an unprecedented 800,000 people have lost their jobs, with many others retaining their job only because of government and other support programs. Conditions have, however, stabilised recently and the downturn has been less severe than earlier expected. While total hours worked in Australia continued to decline in May, the decline was considerably smaller than in April and less than previously thought likely. There has also been a pick-up in retail spending in response to the decline in infections and the easing of restrictions in most of the country.

Notwithstanding the signs of a gradual improvement, the nature and speed of the economic recovery remains highly uncertain. Uncertainty about the health situation and the future strength of the economy is making many households and businesses cautious, and this is affecting consumption and investment plans. The pandemic is also prompting many firms to reconsider their business models. As some businesses rehire workers as demand returns, others are restructuring their operations.

The substantial, coordinated and unprecedented easing of fiscal and monetary policy in Australia is helping the economy through this difficult period. It is likely that fiscal and monetary support will be required for some time.

The Board is committed to do what it can to support jobs, incomes and businesses and to make sure that Australia is well placed for the recovery. Its actions are keeping funding costs low and supporting the supply of credit to households and businesses. This accommodative approach will be maintained as long as it is required. The Board will not increase the cash rate target 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.

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Comments

  1. Ukraine fnMEMBER

    “This accommodative approach will be maintained as long as it is required. The Board will not increase the cash rate target 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.”

    So some time around 2030 then..

    • Alright boys, tough day today. But what’s for lunch? I’m starving and have a hankering for some Wagyu beef and some nice Champagne to wash it down? Who’s paying? The tax payer of course via QE! Hah.

        • How could I forget.. I just don’t mix in those high echelons of society I guess. Silly me.

          • happy valleyMEMBER

            And don’t while quaffing the cristal and downing the caviar, presumably they first talked about the matter of pay rises for themselves because they’ve been working so hard?

      • call me ArtieMEMBER

        Gavin. Gavin. Gavin.
        Wagyu beef is with Burgundy (Shiraz)
        Grange, Hill of Grace etc
        Ask any Chief Magistrate of the Supreme Court

        • Jumping jack flash

          I saw all the Wagyus you could ever want to see on the weekend.
          Some nice steaks in there, 7 – 9+ marble score. Some not as good, around 4 – 5, but you get that.

          The producer was there, he wasn’t real happy. But are they ever?

    • Jumping jack flash

      2050 more likely.

      Don’t worry, in 2050 we will still have plenty of debt slaves struggling to repay their 2 million dollar mortgages taken out in 2019, after years of IO periods from coronavirus, or whatever, for their starter house in Sydney, serviced from 2 average incomes that are still locked at 78K, 30 years later.

      • “in 2050 still underwater with 1m still to pay while property is worth 600k”

        you wish … even after 70% price fall in early 2020s by 2050 we’ll have two more bubbles and one more bust

    • billygoatMEMBER

      RBA governors have been holding something these past few years and it ain’t rates:)

  2. Yep, as suspected, I don’t know how to trade that release…

    Looking at immediate market reactions, in not sure the market knows either…so they trade sideways…amirite?

    • Jumping jack flash

      I expect negative interest rates by Christmas.

      If not, then increased and extended wage subsidies

      Both of those are equivalent, both of those have the same purpose of paying for the debt, and enabling the creation of new debt. All that is different is who pays for it.

  3. why do we still have RBA?
    can somebody remind me?

    what RBA is going to do in next few years can be done with VB macro in excel – no even need for some dodgy IA

    • Jumping jack flash

      What they are going to do is entirely predictable.
      There’s only a handful of options to achieve their goal of debt growth.

  4. Its curious that some people that day trade are then confused about fundamentals when fundamentals started going out the door with short horn day traders … algos were just next gen evolution.

    • Ukraine fnMEMBER

      Brisbane tower goes bust, owing $33m, while 95 per cent
      A 16-level residential tower at the centre of Brisbane’s largest urban development since Expo-88 has been put into administration owing $33 million, despite already being 95 per cent sold.

      There you go.

      • Down 33m despite 95% sold?

        Sounds like they extracted the cash instead of repaying debt and did a runner.

        • Ukraine fnMEMBER

          Prob only had the deposits and caught short in finance of the project (couldn’t get the finish off finance or it was pulled).

          Still would not want to be one of the purchasers as it will be a legal mess.

          • Ah yes that’s true… sold might mean $1000 down and those people might be bailing…!