The RBA eased policy further in November, as was widely expected. The cash rate target, 3-year yield target and lending rate on new drawings under the term funding facility were all cut by 15bps to 0.1%, while the balance paid on ES balances held at the RBA was cut to 0%. In addition, the Bank announced a QE program of $100bn of bond purchases – both AGS and semis – over the next 6 months, while leaving the door open to further QE should the labour market require additional support. The RBA did not provide explicit guidance on a target for the unemployment rate but did reiterate that it will need a tight labour market to see a material increase in inflation to within the target band before increasing rates.

These actions will see the structure of interest rates pushed even lower across the economy and some downward pressure on the exchange rate. Low rates have played an important role in supporting the economy and will continue to do so as the recovery unfolds. However, these actions will likely only have a marginal impact – particularly at the short-end with rates already well below what could be considered neutral. We expect rates to remain low for an extended period – in line with the RBA guidance of unchanged rates for at least the next three years. We see fiscal policy continuing to play a key role in stimulating the economy and expect that the government will need to do more.

For further details, please see the NAB changes rate call – November 2020