RBA Minutes: Board reaffirmed that it would not increase the cash rate target until progress is made towards full employment, inflation


The Reserve Bank of Australia's board reaffirmed that it would not increase the cash rate target until progress is made towards full employment, inflation.

Key notes

  • Members noted that the downturn had not been as severe as earlier expected and recovery was under way in most of Australia.
  • The board agreed to maintain highly accommodative settings as long as required.
  • Recovery was likely to be uneven, with the  COVID-19   outbreak in Victoria having a major effect on the economy.
  • Wage and price pressures remained subdued and this was likely to continue for some time.
  • The board will continue to consider how further monetary measures could support the recovery.
  • The Australian banking system, with its strong capital and liquidity buffers, had remained resilient.
  • Members noted that public sector balance sheets in Australia were strong, which allowed for the provision of continued support.
  • Government bond markets had been operating effectively, alongside a significant increase in issuance.
  • Members  considered it likely that fiscal and monetary support would be required for some time.
  • Government bond markets had been operating effectively, alongside a significant increase in issuance.
  •  The bank stood ready to purchase ags and semi-government securities in the event of a recurrence of market dysfunction.
  • Demand for business loans had remained subdued, reflecting the weakness in economic conditions and the high level of uncertainty.
  •  Supply of credit had also tightened somewhat since earlier in the year, reflecting the uncertain economic outlook.

AUD implications

The market is waiting to see what the Governor means by “further monetary measures could support the economy”.

We are waiting to see what they look like and when they will come.

For the meantime, the Aussie is dependent on risk appetite and so far, all has been well in that department.  

AUD/USD has rallied 34% since March ad shows little signs that it is about to give back any ground while holding above 0.7220 as its daily support. 

Description of the RBA Minutes

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.

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