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RBA holds steady for now ahead of budget

The Reserve Bank has decided to leave the cash rate unchanged at a record low 0.25 per cent at its monthly board meeting, just hours before Treasurer Josh Frydenberg is due to hand down his 2020/21 budget.

There had been speculation the central bank would cut the cast rate to 0.10 per cent, along with some similar tweaking to its bond-buying and bank-lending programs, to coincide with Mr Frydenberg’s statement.

However, economists and financial markets anticipate there could still be a move next month to assist in the recovery from the first recession in nearly 30 years.

“The board is committed to do what it can to support jobs, incomes and businesses in Australia,” Reserve Bank governor Philip Lowe said in his post-meeting statement on Tuesday.

“The board continues to consider how additional monetary easing could support jobs as the economy opens up further.”

He again committed to not lifting the cash rate until progress is made towards full employment.

Mr Frydenberg has repeatedly promised his second budget will focus on jobs.

He offered some reassuring words during his traditional pre-budget appearance before the media in Parliament House.

“This budget is our plan for Australia’s economic recovery,” he said.

“We are already seeing encouraging signs across the economy as people get back to work, as the virus is suppressed, as restrictions are eased.”

It seems Australians like what they are hearing about the budget, but employers may still need some convincing.

New figures released ahead of the budget also suggest exporters may not be so chirpy.

Still, the weekly ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – rose to its highest level since late June, and is now more than 10 per cent above a recent trough in August.

“Continued improvement in the local news around the pandemic and talk of early tax cuts and other fiscal measures in the budget led to a gain in consumer confidence for the fifth straight week,” ANZ economist David Plank said.

However, with the index still below 100 at 95.7 points, there remain more pessimists than optimists.

Mr Plank expects detail of the budget will heavily influence the direction of the index when people are surveyed again next weekend.

ANZ also released its monthly job advertisement series for September.

While it showed a 7.8 per cent increase in jobs ads in the month, and building on an upwardly revised 2.6 per cent increase in August, they still remain 21 per cent below their pre-pandemic levels.

“The question now is whether a return to pre-pandemic levels of job ads and vacancies would be enough to entrench a solid labour market recovery,” ANZ senior economist Catherine Birch said.

Other data showed Australia’s trade position took a big hit in August.

The Australian Bureau of Statistics said the trade surplus of goods and services almost halved in the month, to $2.6 billion from $4.7 billion in July.

This was the result of exports tumbling four per cent, while imports rose by two per cent.

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