RBA Monitor: More stable economic outlook should refrain RBA from cutting further

The RBA is anticipated to remain on hold at the monetary policy meeting on November 3rd leaving the cash rate and the 3-year government bond yield target both at 0.25%.

Although the RBA hinted further monetary easing in the Minutes for the October meeting, the conditions set to provide additional stimulus are no longer met. In fact, Victoria began to ease the lockdown to contain the pandemic from October 27th. The RBA Deputy Governor Debelle even declared recently that Australia is out of recession.

After the monetary policy meeting in October, the Australian government has also reduced the burden from the RBA to ease, by providing substantial fiscal stimulus to stabilize the economy. They include wage subsidies to protect jobs as well as tax cuts to help the low- and middle-income earners. 

Developments in the foreign exchange market do not provide a compelling reason for a policy move in November. Although the Aussie has strengthened after a significant drop at the beginning of the year, the RBA acknowledged that the Aussie was broadly consistent with its fundamentals.

All in all, despite of a market expectation for a rate cut, the RBA is anticipated to opt to save its scarce ammunition at the November meeting.

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