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- The RBA is expected to leave monetary policy on hold for the sixth month in a row. Having provided massive monetary stimulus back in March the RBA is still in "watch and wait" mode, and the policy focus remains largely on fiscal policy. Given the uncertainty around the pace of recovery and the risks flowing from Melbourne's lockdown, the RBA is likely to reiterate its dovish forward guidance on rates and note that it stands ready to do more if needed.
- Ultimately, we think it will ease further sometime in the next six months as its own forecasts have the attainment of full employment and the sustainable achievement of the inflation target as being more than two years away. In terms what it might do if it eases further it has all but ruled out negative interest rates, foreign exchange intervention and the direct monetary financing of government spending, but sees still lower but positive interest rates and the purchase of more government bonds as possible options. A rate cut to 0.1% would hardly be worth the effort which leaves more QE as the main tool for any further easing. Maybe the RBA should also move more explicitly to inflation average targeting like the Fed. Meanwhile, rate hikes are at least three years away.