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How will RBA react to September’s ‘fiscal cliff’ fears?

Derek RoseAAP
A statement by RBA governor Philip Lowe will be pored over to see if there’s ‘any sort of clues or hints’ to what the central bank’s next steps might be.
Camera IconA statement by RBA governor Philip Lowe will be pored over to see if there’s ‘any sort of clues or hints’ to what the central bank’s next steps might be. Credit: Yong Hian Lim/Getty Images/iStockphoto

The Reserve Bank isn’t expected to make any changes to the cash rate on Tuesday but economists will be watching closely to see what the central bank says about the economy, jobs and the Aussie dollar.

St George Bank chief economist Besa Deda says while the RBA left its monetary policy decision unchanged in June, “there’s more of a chance of shift in that now, given there’s been a rise in the virus cases in Victoria, and in a number of US states.”

At the same time, there are indications Australia’s economy has not been hit as badly as originally feared, with car sales up slightly in June and retail spending rebounding in May from a disastrous April.

A statement by RBA governor Philip Lowe will be pored over to see if there’s “any sort of clues or hints” to what the central bank’s next steps might be or if it will engage in more of the bond-buying program known as quantitative easing.

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The central bank may also take a page from its counterparts in New Zealand and discuss the need for a weaker Australian dollar, according to CommSec senior economist Ryan Felsman.

After dropping as low as 57 US cents in mid-March, the Aussie staged a dramatic recovery and has been trading around 68 and 69 US cents for the last few weeks, around the same level it was before the pandemic.

“That could dampen the economic recovery for exporters,” Mr Felsman said.

The Reserve Bank may also choose to address the so-called “fiscal cliff” looming in September when JobKeeper payments and other stimulus measures are set to expire, Ms Deda said.

“My sense is that there won’t be any significant policy changes tomorrow,” Ms Deda said.

While that’s the view of 40 different experts from a Finder.com.au panel of economists and property market experts, at least some participants in the market are gambling that the RBA will slash the cash rate to zero.

The ASX’s RBA Rate Indicator is pricing in a 60 per cent chance of that happening, with just 40 per cent chance the RBA will leave rates unchanged at 0.25 per cent.

But Ms Deda said she didn’t see that happening, given the RBA’s past statements about negative interest rates.

AAP

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