OPINION: RBA, Govt May Work Together Towards Twin Easing Oct 6

By Sophia Rodrigues

It is probably a coincidence the Australian government’s 2020-21 budget and the Reserve Bank’s board meeting is on the same day next month -- October 6.

But do the twin events mean there is a greater probability of twin easing?

In normal times, my answer would be an emphatic “No.” But this is not normal times. This is different.

This time the government and the RBA are working together to support the economy in the wake of the COVID-19 pandemic.


It’s worth recalling the RBA’s first easing to deal with the economic impact of the COVID-19 outbreak via a 25bps cut in the cash rate on March 3 was part of co-ordinated response with the government.

“In discussing a possible monetary policy response, members welcomed indications from the Australian Government that fiscal measures would be taken to support investment, the cash flow of affected businesses and jobs,” the RBA said in the minutes of the March 3 meeting.

“Members recognised that the combined monetary and fiscal responses would help the economy deal with the challenges posed by COVID-19.”

Prime Minister Scott Morrison confirmed that he had a meeting with Governor Philip Lowe and Deputy Governor Guy Debelle, along with Treasurer Josh Frydenberg, the Finance Minister and the Treasurer Secretary a day before the RBA meeting.

“We are highly aligned. Highly aligned in our understanding of what the challenge is here and understanding of the arrangements that can be put in place,” Morrison said.

The bigger response from the RBA came on March 19 with a package of measures that included reducing the cash rate target to 0.25%, introduction of Term Funding Facility and the yield target policy.

On that day, Lowe talked about a bridge that the authorities are building to help the country deal with the serious pandemic situation.

“On the economic front, there is very close policy coordination between the Australian Government, the Australian Treasury, the Reserve Bank and Australia's financial regulators.”

“We are all in close contact with one another and are working constructively together and we will continue to do so. This coordination is evident in the various policy statements today,” Lowe said.

The same day the government announced a complementary program of support for the non-bank financial sector, small lenders and the securitisation market. This was in addition to other economic stimulus measures announced in the days prior.


On October 6, the government is expected to more fiscal stimulus to help in the economic recovery.

It is highly that the RBA will also pitch in with its contribution to help the recovery, in the spirit of the co-ordinated efforts being made by the fiscal and monetary side since March.

ANZ’s senior economist Cherelle Murphy expects direct fiscal stimulus worth around A$180 billion over the four-year forecast horizon in Australia’s upcoming round of federal, state and territory budgets for 2020-21.

“We think another A$80bn of Commonwealth recurrent spending (or revenue forgiveness), A$60bn of Commonwealth capital spending and A$40bn of state (recurrent plus capital) spending are reasonable estimates of the fiscal stimulus to come,” Murphy wrote in a note.

CB-Intel has already discussed the possibility of RBA easing as early as next month in a story published on September 2.

--Contact: Sophia@centralbankintel.com