Preview: RBA meeting July
The Reserve Bank of Australia's monthly policy meeting takes place today. Governor Philip Lowe will hand down his decision statement at 2:30PM (AEST) that will confirm an unchanged policy stance while also reiterating the Bank's forward guidance that the cash rate will be kept on hold until progress is made on lowering unemployment and returning inflation to target.
Setting the scene for today's meeting was the speech given by the RBA's Deputy Governor Guy Debelle to the Economic Society of Australia last week on the effectiveness of the Bank's policy settings. The key points were; 1) the cash rate has been trading around 13-14 basis points and is expected to remain there for at least the next 12 months; 2) the 3-year Commonwealth Government bond yield has been anchored around the 0.25% target and the Bank has not had to make any bond purchases to achieve that target since early May; 3) demand for the RBA's daily market operations has tapered off in recent weeks with exchange settlement balances having been sufficient to meet the liquidity needs of most banks; 4) drawings under the RBA's Term Funding Facility remain modest, though their liaison with the banking sector has indicated that demand will increase over the coming months as banks' wholesale funding matures. The net effect of these policy measures since they were announced on March 19 was assessed by Dr. Debelle as being transmitted into the real economy through a reduction in funding costs for businesses and households.
Key points of interest in today's statement will be around the governor's latest assessment of economic conditions, particularly in light of the recent rise in new virus cases in Victoria that has led to localised lockdowns and the closure of the border with NSW. These developments may have spillover effects on household and business confidence, which the RBA assesses as key to the economic outlook. Since the Board last met, the level of the Australian dollar has firmed slightly, though it does not appear to be of immediate concern based on recent commentaries.
