Preview: RBA Tone Likely Cautious, Dovish-Biased Due to High AUD
- Published on
- 01 Jun 2020, 05:39 PM
By Sophia Rodrigues
The Reserve Bank of Australia is expected to leave policy settings unchanged at the board meeting Tuesday, but the underlying tone could be one of caution and therefore biased towards more easing, especially given the high Australian dollar.
More easing from the RBA could happen in the months ahead through a lower cash rate target and large-scale asset purchases.
On the one hand, the RBA is likely to acknowledge the Australian economy is tracking better than its baseline forecasts published last month and, on the other, it will point towards several uncertainties ahead. Those uncertainties mean that even if the economy is currently performing better than expected, it is by no means certain that the path will continue.
In any case, even an improved path is not good enough to get the economy to full employment and inflation sustainably within the target range.
The RBA’s underlying message would be consistent with what Governor Philip Lowe said at the Parliamentary testimony last week.
“The recent data has been better than expected, but I still see a lot of challenges coming down the track. So, it hasn't been on the upside,” he said.
“Even in the upside scenario, we are going to have high unemployment for quite a few years and inflation is going to be lower than two per cent for quite a few years. We talk about it being upside, but it's actually still a pretty depressing scenario. It's unlikely we will get back to the level of unemployment we've got now, even in the upside scenario,” he said.
Among the commentary to watch for in the one-page statement would be any reference to China, housing market and the Australian dollar.
The last cash rate statement did not have any mention of any of them. The last time the RBA mentioned the Australian dollar level was in the March 3 statement.
The Australian dollar was at US$0.6742 on Monday as per RBA data, up from 1.3% from Friday. It is up 5.3% from the assumption made less than a month ago in the May SOMP.
--Contact: Sophia@centralbankintel.com