Close this search box.

RBA Keeps Policy Unchanged at 0.25%, Signals to Buy Australian Government Securities

Forex traders (foreign exchange traders) anticipate changes in currency prices and take trading positions in currency pairs on the foreign exchange market to profit from a change in currency demand. They can execute trades for financial institutions, on behalf of clients, or as individual investors.
RBA Keeps Policy Unchanged at 0.25%, Signals to Buy Australian Government Securities

SYDNEY–The Reserve Bank of Australia left its policy settings unchanged Tuesday as it navigates the country’s worst economic contraction since the 1930s and said it intends to buy more bonds to cap yields.

The RBA kept its official cash rate at a record-low 0.25% and reaffirmed its 0.25% target for the yield on three-year government bonds, as it weighs the economic impact of tougher lockdown measures to contain the coronavirus in the southeastern state of Victoria.

“The yield has, however, been a little higher than 25 basis points over recent weeks,” Governor Philip Lowe said in a statement. “Given this, tomorrow the Bank will purchase Australian Government Securities in the secondary market to ensure that the yield on three-year bonds remains consistent with the target.”

The RBA quickly bought US$35 billion in bonds after announcing the yield cap in mid-March but then spent weeks on the sidelines. Economists say the policy has so far been successful in anchoring the three-year yield without the RBA having to massively expand its balance sheet.

By signaling the planned bond purchase on Wednesday in advance, Mr. Lowe is bolstering the credibility of the target and reinforcing the central bank’s message that its accommodative approach will remain for as long as it is required.

“Further purchases will be undertaken as necessary,” Mr. Lowe said. “The yield target will remain in place until progress is being made toward the goals for full employment and inflation.”
The RBA said its support package for the Australian economy is working as expected and that the downturn is not as severe as it had earlier expected.

However, the RBA said any recovery would be uneven and bumpy, evidenced by the second-wave virus outbreak in Victoria.

The RBA said its baseline scenario is for output to fall 6% this year, and then rebound 5% in 2021. “In this scenario, the unemployment rate rises to around 10% later in 2020 due to further job losses in Victoria and more people elsewhere in Australia looking for jobs,” Mr. Lowe said.

In recent days, Victoria has declared a state of disaster, imposed a night-time curfew and shut down a swath of commerce in an effort to suppress the virus.

RBA Keeps Policy Unchanged at 0.25%, Signals to Buy Australian Government Securities - Governor Philip LoweEconomists say the Victoria lockdowns could result in Australia’s economy experiencing another fall in output in the third quarter. National Australia Bank Ltd. estimates this week’s restrictions will result in at least an additional 1.90 billion Australian dollars (US$1.35 billion) hit to gross domestic product.

However, economists warn the pain could be felt beyond Victoria’s borders due to the close linkage of supply chains and the impact on consumer confidence.

Australia’s government is keen to slowly withdraw some of the fiscal support provided at the start of the pandemic, but that is being complicated by the flare-up of infections. In an update late last month, Treasurer Josh Frydenberg said the budget deficit will balloon to A$184.5 billion in the year ending June 30, 2021, up from A$85.8 billion in the prior year.

The government’s economic stimulus has included a wage subsidy intended to limit job losses during lockdowns. It has also increased support for the unemployed and assisted badly affected industries such as education and tourism. Mr. Frydenberg estimated last month that the government has provided economic support for workers, households and businesses of around A$289 billion, or about 14.6% of GDP.

Read more:  📌

Statement by Philip Lowe, Governor: Monetary Policy Decision


more insights