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Ending QE Early Would Be Hawkish... Right?

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  • The RBA left the targets for the cash rate and the 3-year government bond yield unchanged at 0.25% at its August Board Meeting, in line with expectations. The RBA's forward guidance was unchanged, although it did observe that the 3-year yield had "been a little higher than 25bp" and guide that it would "purchase AGS in the secondary market".
  • In the subsequent Statement on Monetary Policy and Parliamentary Testimony, the RBA provided extensive guidance around its assessment of the economic outlook and possible future policy adjustments.
  • On the latter, Governor Lowe noted the RBA "could make some adjustments" but didn't think they would "get much traction" and continued to highlight the importance of ongoing fiscal support. That said, Governor Lowe did signal that any further easing would likely involve lowering the cash rate target to 10bp and expanding purchases of longer duration bonds, rather than adopting negative rates.
  • Looking forward, we expect the RBA to keep policy setting unchanged in September, with little change in forward guidance. At the margin, trends in both the virus & macro data have been fairly positive since August's meeting, albeit still soft in absolute terms. Our base case remains for the RBA to remain on hold for the foreseeable future, with a ~25% chance of further incremental easing if the recovery proves slower than expected.
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |
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