Bill Evans: RBA to cut and print!

Via Bill Evans at Westpac:

The Minutes of the October Board meeting of the Reserve Bank of Australia confirm the key themes of Governor Lowe’s speech which was delivered on October 15.

They indicate that the Board had effectively decided to ease policy at the October meeting.

One reason for delaying the announcement would have been to allow the government “clear air” to sell the Budget, which was announced later on that same day, October 6.

The Minutes even cleared up the possibility that the Board would have waited to assess the Budget. The Minutes point out that “The Secretary of the Australian Treasury briefed members on the main features of the Budget”.

But another reason would be to have given more time to the market to absorb the dimensions of the upcoming policy decision.

The concepts which the Governor outlined in his speech last week to a Banking Conference were profound “game changers” for policy and the strategy of allowing ample time for the market to digest these changes makes considerable sense. We provided a detailed analysis of that speech in a bulletin on October 16.

The Minutes describe the policy changes we can expect to be announced at the next Board meeting in the following way:

  • “reducing the targets for the cash rate and the three year bond yield towards zero; without going negative, and buying government bonds further along the curve”.

The commitment to buying more bonds is clearly signalled:

  • ”larger balance sheet expansions by other central banks relative to the Reserve Bank was contributing to lower sovereign yields in most other advanced economies than in Australia…. Members discussed the implications of this for the Australian dollar exchange rate”.

It is important to be clear on this theme. The Board is seeking to lower the AUD through the impact of its purchases of domestic bonds on liquidity and interest rates. It is not embarking on a currency   manipulation path which would result from unsterilised purchases of foreign bonds.

  • “as the economy opens up, members considered it reasonable to expect that further monetary easing would gain more traction than had been the case earlier”.
  • “a further easing would reduce financial stability risks by strengthening the economy and private sector balance sheets”.
  • “the Board agreed to place more weight on actual, not forecast, inflation in its decision making”.
  • “the Board would like to see more than progress towards full employment before considering an increase in the cash rate”.


We can only reiterate our forecasts which were first released on September 23 (initially expected on October 6 but moved to November 3 on September 29).

The Board will cut the cash rate; the three year bond target and the rate on the Term Funding Facility from 0.25% to 0.10%.

In addition, it will reduce the rate on surplus Exchange Settlement Account balances from 0.1% to 0.01%.

We expect the Board will announce the intention to purchase bonds issued by bot Australian Government and semi government authorities in the 5 – 10 year maturity range.

However, we do not expect a specific quantity target for these purchases or an explicit yield target beyond the existing three year target.

David Llewellyn-Smith


  1. call me ArtieMEMBER

    Well, if you believe in “don’t fight the central bank”, then that is a pretty clear signal about AUD

    However, timing is everything and there are a lot of short-ish term tailwinds behind the poo for a little while yet

    *The above is already built-in for November
    *Every other effing place on Earth is going into a Covid nosedive
    *China, iron-ore, totally needs Australia for a few years yet
    *Stability of government

    Yes, AUD looks down long-term, but other majors are dealing with more immediate issues. No crash yet for the poo

  2. pfh007.comMEMBER

    Instead of expanding the Central Bank balance sheet by paying top prices for assets owned by rich people or by cutting the interest rates paid by “credit worthy” folk to borrow money to speculate on asset prices, a much better option would be to allow the central bank balance sheet to expand in a fair and democratic way.

    The banks will hate it of course as they will lose their monopoly on deposit accounts at the RBA but where does it say that the RBA exists to support bank business models?

    • +1
      You need to remember pft007, that the RBA does nothing without quietly consulting the banks. Its a cozy arrangement. Banks will not criticise the RBA , and in return the RBA will not burn the banks.

      • Jumping jack flash

        The RBA supports the private banks and makes sure they’re all happy and handing out debt to everyone in exchange for interest.
        Its role was established back in 2008.

        • I would contest that interest is the exchange, it is that RBA gets to not look like idiots and exposed by the banks. Thats is what they get in return.
          They really have no better idea about the economy and the next punter. In fact probably less as they have never worked in a small business trying to make a profit

  3. happy valleyMEMBER

    The RBA happy clappies – the defacto proud owners of the the dodgy Strayan banking system. You were central in creating Straya’s housing price and everything else bubbles, so it’s only right that you now life support the system particularly since the system is soon to launch the most irresponsible lending, proudly sponsored by Josh, that Straya is ever likely to see.

    • I agree but have some sympathy for Lowe. He inherited the mess and has the job to keep it from imploding. His job is not helped by this rotten government and their dodgy bulls*t budget.

      The magnitude of the fiscal cliff forces then to ease.

      • Have to disagree, Gramus. Lowe get paid $1,000,000. That tells me that someone thinks he has some talent.
        Australia would be better off if these talents spoke their mind. We heard him several times in Jan and Feb say OZ is a great place to live , as if that had anything to do with a robust financial system.
        If its screwed, we need to be told it screwed. and maybe someone will do something positive. For $1m pa , OZ needs a better contribution

  4. Jumping jack flash

    Cutting is a no-brainer. They love cutting. Cutting is something they’re quite comfortable with, unless it is to below zero, then they’re likely to baulk at that and put it off for as long as possible.

    Printing is a big surprise if it happens, but, if they believe their dodgy inflation figures then I suppose it makes perfect sense at this point.

    I will be surprised if they print because printing doesn’t help the banks, unless it is for QE.

  5. “Bill Evans: RBA to cut and print!”

    Well, duh … they’re not driving the bus — the Fed is. Lowe and his fellow committee chumps are just passengers. We get to pay tens of millions in salaries to these people who are essentially bots.