RBA remains open to cutting rates further – TD Securities

Analysts at TD Securities explain that the RBA minutes of the August meeting show the Bank remains open to cutting rates further, but the Bank does not appear to be in any immediate rush to cut soon, reaffirming a better growth outlook based on rate cuts, tax cuts and infrastructure spending.

Key Quotes

“The Bank is downbeat on prospects for inflation, noting that there were “few signs” of pressure building, supporting a lower for longer stance. Of more interest was the Bank’s discussion on QE, with officials reviewing and exploring the options over the past decade.”

“The takeaway was “that a package of measures tended to be more effective than measures implemented in isolation”. The policies that the RBA reviewed were: 1) Very low and negative policy rates, 2) Explicit forward guidance, 3) Lowering long-term risk-free rates by purchasing government securities, 4) Providing long-term funding to banks to support credit creation, 5) Purchasing private sector assets and 5) Foreign exchange intervention.”

“The problem with making a full assessment however was that “many of these measures were yet to be unwound”.

“Our current call is for the RBA to cut in Nov’19, but acknowledge a cut in Oct is conceivable should the Aug unemployment rate tick higher and Q2 GDP disappoint. The tone of today's minutes suggest the RBA would rather wait than cut. For now we are paid Sep OIS.”