Preview: RBA September meeting
The Reserve Bank of Australia Board's monthly meeting takes place today, with the status quo on policy settings expected to remain when Governor Philip Lowe hands down his decision statement at 2:30PM (AEST).
Communications from the RBA over the inter-meeting period have come across as less optimistic, in part due to the impact of the reversal of Victoria's reopening, which the Bank forecasts to subtract at least 2 percentage points from national GDP growth in Q3. Beyond this though, the August Statment on Monetary Policy downgraded the pace of the economic recovery in 2021 from 6% to 5%, with household spending to improve on a less robust trajectory and the effects of international travel restrictions to persist for longer. Meanwhile, the unemployment rate is now forecast to take longer to rise to its peak level, reaching 10% by the end of 2020, and then decline more slowly over the following couple of years. This led Governor Lowe at the RBA's recent parliamentary testimony to leave the door ajar for further policy support, including a lower but still positive cash rate, a separate bond purchase program, and changes to the specifications of its Term Funding Facility (TFF).
Over the inter-meeting period, the restart of the RBA's bond purchases announced at the August meeting has resulted in $10bn of Australian Government Securities being added to its balance sheet over the past 4 weeks to bring the yield on 3-year maturities closer to the 0.25% target and to support market functioning amid some $34.5bn in new AOFM bond issuance. Meanwhile, drawings under the TFF are reported to have increased by $12.9bn to $41.6bn in total. Of most interest to markets will be the extent to which the governor discusses the possibility of more support. This follows last week's announcement from the US Federal Reserve of its shift to an average inflation targeting regime, pointing to a longer period of accommodative settings from the world's most influential central bank. On the back of this, the Australian dollar has continued to strengthen lifting by around 3% against the US dollar to around 0.7350.
