MNI PREVIEW: RBA Seen On Hold, Less Downbeat On Outlook

By Lachlan Colquhoun

     SYDNEY(MNI) - The Reserve Bank of Australia is expected to leave both its

key interest rate and the terms of its asset purchase scheme unchanged on May 5,

as it takes stock following a slew of policy actions in recent weeks.

     With some of the Covid-19-related restrictions being lifted in Australia,

the central bank appears a little more upbeat that the economy may fare better

than first feared, as parts of Asia recover at a quicker pace than the rest of

the world.

     Policymakers seem happy with moves taken since March 18 and can probably

wait for the dust to settle somewhat. Last month, the RBA cut rates to a record

low 0.25%, announced a bond buying program targeting 3-year government bond

yields and a AUD90 billion Term Lending Facility for major lenders.

     Governor Philip Lowe has said on several occasions that he expected

official rates to stay at 0.25% for a "number of years", adding that the bond

buying program has been largely successful in achieving its target of a yield of

0.25% on the benchmark 3-year bond, and that purchases may be scaled back.

     The RBA has spent around AUD47 billion buying bonds on the secondary market

since it announced the programme on March 20.

     --ECONOMY

     Recent data has been weak and will no doubt get worse over coming months.

The RBA's thinking and forecasts will be laid out in depth when it publishes its

Statement of Monetary Policy on May 8.

     Lowe has said domestic inflation could "turn negative" in the June quarter,

although he sees no medium term deflationary impact as a result of the pandemic

disruption.

     Describing the disruptions as a "once in a century event", Lowe forecast a

10% decline in national output over the first half of 2020, with most of the

decline in the June quarter.

     Unemployment was "likely to be around 10% by June," with the total number

of hours worked likely to slide by a "staggering" 20% over the first part of

2020.

     Lowe sees a pickup through the second half, assuming various restrictions

are eased towards the middle of the year and most removed by year's end, which

could lead to GDP growth of 6-7% next year.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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