Insight: RBA Oct Meeting Remains Live Despite No Further Hint in Minutes

• Published on
• 16 Sep 2020, 06:26 PM

By Sophia Rodrigues

A further easing in the Reserve Bank of Australia’s monetary policy remains on the cards even though minutes of the September board meeting did not expand on “further monetary measures.”

October remains a possibility and if not, it would be highly likely before the end of the year.

The minutes of the September board meeting, published Tuesday, disappointed market because there was an expectation the RBA would give more details on what further monetary measures it is considering to support the economic recovery.

However, the RBA did not provide any details, other than reiterating the line from the cash rate statement that it would “continue to consider how further monetary measures could support the recovery.”

TWO REASONS

One of the reasons the RBA did not expand on it was because it has provided details previously in the minutes of the July board meeting, and in a speech by Governor Philip Lowe on the same day.

Lowe said that based on international experience it was possible that the various interest rates currently at 25 basis points could have been set lower, at say 10 basis points.

“It would also have been possible to introduce a program of government bond purchases beyond that required to achieve the 3-year yield target. Different parameters could have also been chosen for the Term Funding Facility.”

Another reason is that unlike central banks like the Fed and the ECB, the RBA has never given precise details about its future actions.

Therefore, the clearest signal from the RBA that it is close to an action is the line from the cash rate statement that it “continues to consider how further monetary measures could support the recovery.”

SOME EASING ALREADY DELIVERED

In fact, since first indicating in July that is not ruling out adjusting the package and repeating it in August, the RBA delivered an easing in September when it increased banks’ funding allowance under the Term Funding Facility and extended the deadline for drawing it.

In the minutes, the RBA described it as “further easing of monetary policy” that would bring the total amount under this facility to around A$200 billion.

It is worth recalling CB-Intel has previously published several stories about possibility of more RBA easing which could include lowering the cash rate target to 0.10%, along with lowering the rate on Term Funding Facility to 0.10%, and a cut in the three-year yield target or extending the target to four or five years.

A cut in the cash rate target would likely be accompanied by a cut in the rate on Exchange Settlement balances to 5bps from the current 10bps.

--Contact: Sophia@centralbankintel.com