Room for rates to go a little lower: RBA

The Reserve Bank of Australia says there is scope to lower the cash rate and use other policy instruments, as speculation mounts for a possible cut as early as November.

RBA assistant governor for financial markets Christopher Kent, reiterating recent comments by governor Philip Lowe, said addition monetary policy easing could gain a bit more traction now the economy was opening up, including Victoria.

“They could all go a little lower than they currently are,” Dr Kent told a webinar on Tuesday, with reference to the cash rate and the three-year bond yield target.

But he declined to speculate whether the RBA would start buying longer-dated bonds other than three-year issues.

“That would reduce funding costs more obviously for governments but also the private sector,” he explained, adding it can also be expected to lower the exchange rate.

In his address to the IFR Australia DCM Roundtable webinar, Dr Kent admitted the RBA monetary policy tools had become more complex in supporting the economy.

“It used to be that looking at the board’s cash rate target, and coming to a view on its likely path, provided a reasonable summary of the stance of monetary policy,” he said.

“Some of the tools influence interest rates directly in a way that gives us greater control over a wider range of rates than previously.”

Economists expect a cut in the cash rate to 0.10 per cent from 0.25 per cent at the November 3 board meeting and similar reductions to its three-year bond target and the Term Funding Facility, as well as an expanded bond buying program for maturities greater than three years.

The minutes of the RBA’s October 6 board meeting also released on Tuesday reiterated a commitment to maintain highly accommodative policy settings as long as required.

Interest rate cut talk came as new figures showed labour market weakness, not just in Victoria where jobs have been notably hit recently because of its COVID-19 lockdown.

Payroll jobs fell 0.9 per cent across the fortnight to October 3, the Australian Bureau of Statistics said.

ABS head of labour statistics Bjorn Jarvis said all states and territories reported a fall in payroll jobs in late September, ranging from a 1.2 per cent decrease in the Northern Territory to a 0.7 per cent decline in South Australia.

Still, consumer confidence continues to grow after this month’s tax-cutting federal budget, providing a positive outlook for retail spending. 

The ANZ-Roy Morgan consumer confidence index rose for a seventh straight time, up 0.4 per cent in the latest week.

ANZ head of economics David Plank said barring Tasmania, NSW and Victoria, all the states were now above an index level of 100, indicating optimists outweigh pessimists.

“Further easing of COVID-19 induced restrictions should support the index over this week as it seeks to move back to its pre-pandemic level,’ Mr Plank said.

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