As expected, the RBA Board left its monetary policy stance unchanged (cash rate and 3-year AGS targets at 0.25%, Term Funding Facility rate at 0.25%) at today's October policy meeting, but the door has been left open for more support in the near term. The clearest indication of this in today's decision statement from Governor Philip Lowe was the line that; "The Board continues to consider how additional monetary easing could support jobs as the economy opens up further". Coming hours before the delivery of the Federal Budget for 2020-21, Governor Lowe noted the importance of both the fiscal and monetary levers working together given the economic outlook and labour market conditions.
A key feature in today's statement was the emphasis given to the level of accommodation already being provided by current settings. On the Term Funding Facility, it was noted that in addition to the $81bn in initial drawings, the banking sector will have access to a further $120bn in cheap 3-year liquidity following the expansion announced at the September meeting. Together with its purchases of Commonwealth Government bonds (currently at $63bn), the yield on 3-year maturities was noted to have fallen below the target "to around 18 basis points as markets price in some probability of further monetary policy easing". Comments on the domestic currency were limited to; "The Australian dollar remains just a little below its peak of the past couple of years". This comes after a decline of around 3% in US dollar and trade-weighted terms since the September meeting.
On economic conditions, following the 7% contraction in output in Q2, the recovery was starting to take place, albeit restrained due to the reversal of Victoria's reopening. As a result, the governor's expectation is that the economic recovery is "likely to be bumpy and uneven and it will be some time before the level of output returns to its end 2019 level". In the labour market, the good news is that a lower peak in the unemployment rate is now anticipated from the 10% level earlier expected, though it will still be highly elevated. Indeed, reducing the level of unemployment was seen by the Board as "an important national priority". These assessments come ahead of next month's quarterly statement from the Bank that will include a full set of updated forecasts.
For further guidance on policy, markets can now look forward to October 15 where Governor Lowe is scheduled to deliver a speech at 8:45am (AEDT).
