The Reserve Bank of Australia's final scheduled Board meeting for 2020 takes place today, with the decision statement from Governor Philip Lowe due at 2:30pm (AEDT). Expectations for this meeting are low with no changes in policy to be the call after the Board announced significant easing measures in November as rates were lowered by 15 basis points to 0.1% across the targets for the cash rate and 3-year Australian Government bond yield and on new drawings under the Term Funding Facility, and a $100bn quantitive easing (QE) program was announced focused on maturities within the 5 to 10-year range through to mid-2021. Furthermore, the rate banks earn on deposits held at the RBA was lowered from 0.1% to 0%. Given this, tomorrow's parliamentary testimony where Governor Lowe appears before the House of Representatives Standing Committee on Economics (12.00pm AEDT) potentially shapes as being of more interest to the markets.
That said, Governor Lowe's commentary on economic developments in today's statement will be key. A theme of improving momentum in the recovery has emerged since the November meeting with the economy opening up more widely and clear signs that earlier stimulus measures are gaining traction. While there has been encouraging news in the data of late and optimism around potential vaccines for 2021, the tone Governor Lowe takes this week is likely to be one of caution. With uncertainty over the economic outlook remaining elevated and the recovery still a long way from being complete, there can be no room for complacency. As such, Governor Lowe will reiterate the earlier guidance that the Board is "prepared to do more if necessary" providing an assured message turning into 2021 that its policy stance is alert and flexible to changes in economic conditions.
On the QE program, the RBA has kept purchases in line with its pre-advised run rate of $5bn per week with $19bn in purchases completed so far ($16bn in AGS, $3bn in semis). In addition, $5bn of purchases have been completed in support of the new 0.1% yield target on 3-year AGS. Meanwhile, drawings under the Term Funding Facility have been stagnant since the end of September at around $83.5bn according to the latest data.
