RBA Preview - December 2020: A Quiet End To An Active Year

• The RBA is set to leave its monetary policy settings unchanged at its final monetary policy decision of 2020, rounding off a year which has seen the Bank dip its feet into the waters of unconventional monetary policy for the first time.
• The Bank remains against the idea of a negative cash rate, and would only really open up to the possibility of such a move if the likes of the Fed and BoC went down that particular rabbit hole (both of those central banks have also stressed their reluctance re: the idea of sub-zero benchmark rates).
• Ultimately, the RBA views its previously enacted/outlined policy easing as enough for now, which it hopes will provide a fertile enough round for the fiscal side of the coin to come to the fore, whether that be at federal or state government level. RBA Governor Lowe has even gone as far as outlining targets for state governments to hit re: infrastructure investment, blurring the lines between the sides of the policy sphere.
• In sum, relative matters remain at the heart of the Bank's thought process, whether that be in terms of policy rates, FX levels or government bond yield spreads. The Bank will be faced with several challenges on that front, mostly stemming from Australia's relative success in dealing with COVID-19. Any gyrations within the FX and bond markets will likely remain well within the confines of the new normal established in recent years and shouldn't necessarily result in a knee-jerk reaction from the RBA, unless the momentum behind any such move is overwhelming. The Bank's focus on realised employment and inflation measures (which we have discussed previously) also points to a lower for longer policy outlook.
• The decision will be followed up by Governor Lowe's latest appearance before the House of Representatives Standing Committee on Economics, which takes place on Wednesday. While we shouldn't expect any changes to the broad brushstrokes of the Bank's policy settings the lengthy Q&A may provide us with some insightful nuances, questions permitting.

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RBA Preview - December 2020.pdf