RBA holds rate, economic outlook uncertain

Prashant Mehra
(Australian Associated Press)


The Reserve Bank of Australia has kept the cash rate at a record low 0.25 per cent at its monthly board meeting as it assesses the extent of the coronavirus-driven economic downturn.

Economists had widely expected the central bank to hold the benchmark rate at the current level.

The RBA cut rates twice and announced quantitative easing measures in March in an effort to cushion the economy from the impact of the coronavirus pandemic.

Governor Philip Lowe on Tuesday said the RBA board had decided to maintain the current policy settings, including the targets for the cash rate and the 25-basis point yield on three-year Australian government bonds.

He noted that while financial markets globally remained fragile, conditions had improved and credit markets had progressively opened to more firms.

Australia’s government bond markets were operating effectively and the central bank had had to purchase government bonds on only one occasion since the previous month’s board meeting, he said.

The RBA was prepared to scale up purchases again and do whatever was necessary to ensure bond markets remained functional and the three-year AGS yields stayed at current levels, he reiterated.

The central bank would not increase the cash rate target until progress was made towards full employment and it was confident inflation would be sustainably within the 2.0 per cent to 3.0 per cent target band.

The governor was more upbeat on the economic impact of the coronavirus, saying it was possible the depth of the downturn would be less than expected.

Some restrictions were being eased earlier than expected, there were signs hours worked stabilised in May, and here had also been a pick-up in some forms of consumer spending.

“However, the outlook, including the nature and speed of the expected recovery, remains highly uncertain and the pandemic is likely to have long-lasting effects on the economy,” Mr Lowe said.

Much would depend on the confidence that people and businesses had about the health situation and their own finances, he said.


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