Today's board meeting was one of the most anticipated in recent months with the possibility of a cut looking increasingly likely after comments from RBA Deputy Governor Guy Debelle.
But Australia's official cash rate will remain unchanged in October, with the RBA likely deciding to hold fire because of the Federal Budget, set to be delivered at 7.30pm (AEDT) tonight.
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Economists had widely predicted this would be the case, with a Bloomberg poll revealing 20 out of the 24 economists surveyed had predicted no change to the official cash rate in October.
Today's decision marks the seventh consecutive month without a cut following a turbulent March which saw two rate cuts and the implementation of a quantitative easing program as the RBA resorted to emergency measures to soften the economic blows of COVID-19.
Speaking about the decision, Reserve Bank governor Philip Lowe said despite the economy entering its first recession in 29 years, a substantial easing of fiscal policy has supported the economy.
"Public sector balance sheets in Australia are in good shape, which allows for continued support, with the Australian Government budget to be announced this evening," Dr Lowe said.
"Both fiscal and monetary support will be required for some time given the outlook for the economy and the prospect of high unemployment."
Lowe said the RBA's policy package is "working as expected" and underpinning very low borrowing costs and the supply of credit to households and businesses.
"There is a very high level of liquidity in the Australian financial system and borrowing costs are at record lows," Dr Lowe said.
He also said the Board is committed to doing what it can to support jobs, incomes and businesses.
"The Board views addressing the high rate of unemployment as an important national priority," he said.
"It will maintain highly accommodative policy settings as long as is required and will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3% target band.
"The Board continues to consider how additional monetary easing could support jobs as the economy opens up further."
Place your bets on Melbourne Cup rate cut
Next month's RBA board meeting will be interesting, with NAB, Westpac, and 14 of 24 Bloomberg-polled analysts all expecting the RBA to cut the cash rate by 15 basis points in November.
This would take the official cash rate to a new record low of 0.10%.
Westpac economist Bill Evans had previously been forecasting a rate cut in October before backflipping and revising his forecast of a rate cut for November instead.
Evans said this was because cutting the official cash rate on the same day as the Federal Budget could be seen as being politically motivated.
"A central bank moving on Budget Day could be interpreted by the government and the bank itself as diverting attention away from the Budget and complicating the government’s task in “selling” the Budget," Evans said.
"So in the eyes of the authorities, there was probably a trade-off between a “Team Australia” moment and the government having the clear air to sell its Budget without any distractions from other policy makers."
Speaking about today's RBA decision, Mortgage Choice CEO Susan Mitchell said RBA Board members are waiting to see what is delivered at the Federal Budget tonight before making changes to the official cash rate.
“The highly anticipated 2020/21 Budget is expected to provide stimulus to support the nation’s economic recovery in the form of tax cuts, infrastructure investment, renewed JobSeeker and JobKeeper policies and an expanded HomeBuilder Scheme," Mitchell said.
“The Government has already announced the extension of the First Home Loan Deposit Scheme. This will enable an extra 10,000 buyers who build new homes to get into the property market with a deposit as low as 5% from October 6 until June 30 2021. The Government expects the scheme to drive more construction and support job growth.”
CoreLogic head of research Tim Lawless said the decision to cut rates next month could hinge on what's delivered in tonight's Budget.
"The focus now will be on whether the stimulus measures announced in the budget tonight are enough to offset the tapering of JobKeeper and the effect of higher mortgage arrears as home loan repayment deferrals become less prevalent," Lawless said.
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