RBA Review - October 2020:  Door To November Move Remains Open

MNI POV (Point Of View): Door To November Move Remains Open

• The Reserve Bank of Australia (RBA) left its monetary policy settings unchanged at its October meeting, as expected by the majority of analysts, preferring to deploy changes in rhetoric and allow focus to fall on the federal and state budgets that were due in the coming hours/days.
• There were no overt clues regarding which methods the RBA may adopt re: further easing/when they may be deployed, but the RBA has already sketched the "what" out in several recent addresses.
• All in all, we would suggest that the Bank will likely ease policy in November, with 15bp cuts to the cash rate target, 3-Year yield target and the rate applied to the TFF (to 0.10% in each case). Such a move would likely be accompanied by a cut in the interest rate applied to surplus E/S balances lodged at the RBA, perhaps to 0.05%. We could also see the Bank adopt a purer form of QE.
• Such a package should be assessed on net and seen as a way to facilitate investment and promote growth in the Australian economy, with RBA Governor Lowe particularly focused on the state-level fiscal deployment. The federal budget was perhaps not quite as stimulatory as most of the sell-side expected, at least in headline deficit terms, but the roll forward of the previously outlined income tax cuts, which will include some backdating, provides a real credit impulse to households. Some may argue that this lessens the need for RBA easing, but to us, the choice of language, particularly surrounding the labour market situation, suggests that further easing is in the offing.

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RBA Review - October 2020.pdf