RBA KEEPS CASH RATES ON HOLD!


At its May Board meeting, the RBA has decided to maintain its current policy settings, which includes keeping the official cash rate at 0.25%. In a statement accompanying the decision, RBA Governor Philip Lowe said – The global economy is experiencing a severe downturn as countries seek to contain the coronavirus. Many people have lost their jobs and a sharp rise in unemployment is occurring. At the same time, the containment measures have reduced infection rates in a number of countries. If this continues, a recovery in the global economy will start later this year, supported by both the large fiscal packages and the significant easing in monetary policies. ... In Australia, the functioning of the government bond markets has improved and the yield on 3-year Australian Government Securities (AGS) is at the target of around 25 basis points. Given these developments, the Bank has scaled back the size and frequency of bond purchases, which to date have totalled around $50 billion. The Bank is prepared to scale-up these purchases again and will do whatever is necessary to ensure bond markets remain functional and to achieve the yield target for 3-year AGS. ... The Bank's daily open market operations are continuing to support credit and maintain low funding costs in the economy. To assist with the smooth functioning of Australia's capital markets, the Bank has decided to broaden the range of eligible collateral for these operations to include Australian dollar securities issued by non-bank corporations with an investment grade credit rating. ... The Australian economy is going through a very difficult period and there is considerable uncertainty about the outlook. Reflecting this uncertainty, the Board considered a range of scenarios at its meeting. In the baseline scenario, output falls by around 10 per cent over the first half of 2020 and by around 6 per cent over the year as a whole. This is followed by a bounce-back of 6 per cent next year… In the baseline scenario considered by the Board, the unemployment rate peaks at around 10 per cent over coming months and is still above 7 per cent at the end of next year. ... There has been a substantial, coordinated and unprecedented fiscal and monetary response in Australia to the coronavirus. Without this response, the outlook would have been even more challenging. These policies are supporting the economy right now and will help when the recovery comes… The deferral of loan and other payments is helping people manage their cash flows. The Australian banking system, with its strong buffers of capital and liquidity, is also helping the economy traverse this difficult period. ... The Board is committed to do what it can to support jobs, incomes and businesses during this difficult period and to make sure that Australia is well placed for the expected recovery. The Board 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 per cent target band. To read the full statement, go to https://www.rba.gov.au/media-releases/2020/mr-20-13.html

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