RBA will cut rates and step up QE in October

Recent data from Victoria show that the second lockdown has not curbed activity as much as we had anticipated. We are therefore revising up our Q3 GDP forecast. Even so, the economic outlook remains pretty bleak so we think the RBA will need to unleash more stimulus before long. Indeed, we now expect the RBA to cut the cash rate target, the target for three-year bond yields, and the interest rate on the Term Funding Facility to 0.1% at the Bank’s next meeting in October. And we still expect the Bank to launch a second round of quantitative easing aimed at lowering longer-dated bond yields.