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RBA Preview: what to expect from the RBA’s emergency meeting

The RBA will hold an emergency meeting on Thursday, March the 18th at 2.30PM.

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The economic data that matters:

GDP (YoY)

Unemployment Rate

Wages Growth (YoY)

CPI (YoY)

Retail Sales (YoY)

2.2%

5.3%

2.2%

1.8%

2.3%

What are the key themes to watch out of this RBA meeting?

The COVID-19 emergency response

The Australian economy is at a high risk of entering a recession, as a result of the impacts of the global coronavirus pandemic. Central bankers, and other economic policymakers, have pulled-out all stops to support the global economy as signs mount of a looming downturn in global growth, pumping trillions of dollars’ worth of economic stimulus in the past month. The RBA has already cut interest rates once in direct response to the crisis, at the start of this month. But as central bankers across the globe have resorted to extraordinary stimulus measures to support markets and economies, it’s become apparent the RBA will have to follow suit, in order to keep pace, and ensure the Australian economy is adequately supported to weather the crisis.

The RBA's new policy tools

The RBA is expected to cut rates as its first emergency measure. But given the cash rate is already at historic lows of 0.5%, another 25-basis point cut to the RBA’s “Effective Lower Bound” of 0.25% in unlikely to provide the boost the Australian economy needs. Hence, the RBA is likely to announce a suite of “unconventional” monetary policy measures to push interest rates lower, ease financial conditions, and stimulate economic growth. The measure will likely be a Quantitate Easing program, where the RBA will purchase government bonds to pump money into the economy; along with a policy of yield curve control, where the RBA actively suppresses long-term bond yields, in order to keep borrowing rates low throughout the economy.

Do you want to know more about what QE is, and how it works? Read our explainer here.

Source: ASX

How could the RBA meeting impact the financial markets?

Markets have already moved to price-in the likelihood that the RBA will embark on a quantitative easing program. The results have already been in financial market action. Australian Government Bond yields have plummeted, as traders prepare for a world of low interest rates, high demand for government paper, and artificially supressed yields. The fall in Australian rates has resulted in a widening of yield differential for the Australian Dollar across most currency pairs, with the AUD/USD falling to fresh 17-year lows, and trading into the 59-cent handle as a result. The stock market has also likely been hit in the short-term by the expectation of an Australian QE program, with bank shares plummeting as markets price-in a hit to bank profits from lower interest rates.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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