RBA's Lowe's prepared statement and key notes, eyes on AUD downside

At a parliamentary event today, Reserve Bank Governor Philip Lowe is going to be quizzed about what the central bank intends to provide in the case that households and businesses will need additional measures of support through the coronavirus recession. 

It is the Parliament’s Economic Committee where a half-yearly update is being given with a prepared statement.

This will run close to 3 hours in a Q&A with the committee.

From the below key statements, Australia's central bank has not ruled out a separate bond-buying programme or other adjustments to its suite of policy measures, although the "best course of action" is to continue with its current package.

The prepared statement, key notes

• Reserve bank of Australia gov lowe says Q2 GDP likely to show drop of around 7%.
• Says high degree of uncertainty about the outlook and our economic recovery.
• Says board considered the possibility of undertaking a regular program of bond purchases.
• Says expecting the Australian economy to contract around 6% this year, and then grow by 5% next year and 4% in 2022.
• Says not expecting a lift in economic growth until the December quarter due to victoria coronavirus outbreak.
• Says chose yield target as it reinforces the forward guidance regarding the cash rate.
• Says baseline forecast for the unemployment rate to increase, reaching around 10% later this year.
• Says conditions for rate rise not likely to be met for at least three years
• Says for time being, the board's view is that best course of action is to continue with the current package
• Says monetary financing of the budget is not on the agenda in Australia
• Says board has clearly indicated it will not raise cash rate until progress is made towards full employment, inflation target
• Says it is highly likely that the cash rate will be at this level for some years
• Says have not ruled out a separate bond-buying program, or other adjustments to the mid-march package
• Says for the time being, the board's view is that the best course of action is to continue with the current package
• Says expected increase in public debt is entirely manageable and is affordable
• Says right thing to do to borrow today to help people, keep them in jobs
• Says high unemployment is likely to be with us for some time

Market implications

Last week, the RBA downgraded its outlook for the economy and warned unemployment would stay high for several years with the second-most populous state of Victoria battling a fresh wave of coronavirus infections.

This follows the latest jobless figures which have shown the number of people unemployed topped one million for the first time.

The jobless rate moved up to 7.5 % in July, even before the harsh Melbourne lockdowns took effect.

The RBA has predicted that the unemployment rate will hit 10% by the end of the year, and still be around 7% in two years.

The jobless rate was 5.1% before the virus entered Australia.

The Aussie is a little higher than the lows of the New York session when the following article was published, exposing the risks to the currency and the potential for a bearish head and shoulders formation and downside territory. 

There is little in these statements to safeguard the currency from supply if the data and indeed the virus conditions deteriorate between now and the next RBA meetings through the Autumn months.

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