Will the RBA change the cash rate in October?

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on October 06, 2020
Will the RBA change the cash rate in October?

Photo by Kon Karampelas on Unsplash

Australia's central bank meets today to discuss the possibility of a change to the cash rate for October.

Today's Reserve Bank (RBA) meeting is one the most anticipated in recent months, with the possibility of a cut increased due to comments from RBA Deputy Governor Guy Debelle. 

However, a cut to the cash rate this afternoon still seems unlikely - a Bloomberg poll revealed 20 of 24 analysts forecasted no change to the rate. 

Economists widely predicted the RBA will hold fire today to give precedent to the Federal Budget, set to be delivered at 7.30pm tonight. 

NAB, Westpac, and 14 of 24 Bloomberg-polled analysts instead expect the RBA to cut the cash rate by 15 basis points in November, taking it to a new record low of 0.10%. 

Check out the decision here.

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Westpac chief economist Bill Evans had previously forecasted an October rate cut, but readjusted this due to the $230 billion deficit the government is expected to announce. 

"Cutting the cash rate a week before the Budget announcement has a much less significant effect on the government’s capacity to sell the Budget than acting on Budget Day," Mr Evans said.

"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.

"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."

Should there be no change to the rate today, it will be the seventh consecutive month without a cut, after a tumultuous March saw two rate cuts and implementation of a quantitative easing program, as the RBA attempted to thwart the economic fallout of COVID. 

Since then, the central bank has run the narrative the cash rate has reached its effective floor and ruled out negative interest rates. 

But a speech from Dr Debelle two weeks ago suggested a change to this narrative, with the RBA Deputy Governor suggesting the current support measures could be altered. 

"As the outlook for the Australian economy unfolds, the Board will continue to assess the merits of the range of monetary options to best support the economic recovery." Dr Debelle said.

These comments led NAB economists to forecast a cut to the cash rate in October or November, with November the more likely to avoid clashing with the budget. 

"NAB expects these further easing measures to be announced at either the October or November Board meetings, noting that the October Board meeting is the same day as the Budget, while the November SMP after the November Board could be an avenue to communicate its messaging to a wider audience," they said.

NAB noted the impact of such a rate cut would be marginal, as despite the official cash rate target currently sits at 0.25%, the RBA's alternative easing measures have pushed the interbank overnight cash rate down to 0.13%.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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