Reserve Bank of Australia
The Reserve Bank of Australia met last night and they lowered rates to 0.10% from 0.25% as expected. This was a widely flagged move and in addition to the rate cut there was an additional $AUD 100bln of bond purchases of 5-10yr maturities for 6 months. All of this was expected. In addition to the above the RBA said that the cash rate will not be raised for the next 3 years. The Board also said that it is prepared to do more if necessary and is prepared to buy bonds in any quantity to keep the 3yr yield target which was lowered to 0.10%.
You can read the full statement here.
Some other points to note
- Conditions for raising cash rate are: higher inflation, rising employment and higher wages.
- RBA said recent economic data has been encouraging and near term outlook better than it was three years ago.
- Unemployment is expected to remain high but peak below 8% and sees end 2022 unemployment at around 6%. This is better than the previous forecast of unemployment peaking at 10%.
In the press conference afterwards Governor Lowe said that negative rates were extraordinarily unlikely, but that the RBA not out of firepower yet. However, Lowe said that all that can be done on rates has been done now and the focus now is on quantitative easing.
What's the trade from this?
This opens up a potential divergence between the RBA and the RBNZ again. The RBNZ is preparing to turn rates negative which should now support the AUDNZD pair higher. The next RBNZ meeting is on November 11.
