RBA Holds Key Rate At Record Low

Australia’s central bank maintained its interest rate at a record low and quantitative easing unchanged as the package unveiled in March is supporting the economy as expected.

The board of Reserve Bank of Australia, governed by Philip Lowe, decided to maintain cash rate and the targeted yield on three-year government bonds of 25 basis points.

Lowe said the bank will buy government securities in the secondary market on Wednesday to ensure that the yield on 3-year bonds remains consistent with the target.

The bank vowed to maintain accommodative approach as long as it is required.

The RBA will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3 percent target band, Lowe said in a statement.

The RBA had reduced the key interest rate to the current record low of 0.25 percent at the March meeting. Also in March, the bank had introduced asset purchase programme to combat the downturn caused by the pandemic.

As Australians deal with the coronavirus, the economy is being supported by the substantial, coordinated and unprecedented easing of fiscal and monetary policy, the banker noted. It is likely that fiscal and monetary stimulus will be required for some time given the outlook for the economy and the labor market.

The downturn is not as severe as earlier expected and a recovery is now underway in most of Australia. However, the recovery is likely to be both uneven and bumpy, with the coronavirus outbreak in Victoria having a major effect on the Victorian economy, Lowe observed.

According to the baseline scenario, output falls by 6 percent over 2020 and then grows by 5 percent over the following year.

In this scenario, the bank expects the unemployment rate to rise to around 10 percent later in 2020 due to further job losses in Victoria and more people elsewhere in Australia seeking jobs. Nonetheless, the rate will fall gradually to around 7 percent over a couple of years.

Inflation is forecast to remain below 2 percent over the next couple of years.

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