RBA Keeps Monetary Policy Unchanged As Expected

Australia’s central bank retained its benchmark interest rate at a historic low and quantitative easing unchanged as expected ahead of the federal budget announcement later today.

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.

The board also retained the parameters for the expanded Term Funding Facility.

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.

The board viewed addressing the high rate of unemployment as an important national priority.

The RBA said that the unemployment rate is likely to peak at a lower rate than earlier expected. Nonetheless, unemployment and underemployment are set to remain high for an extended period. Wage and inflation pressures remained very subdued.

The bank reiterated that it will maintain highly accommodative policy settings as long as is required and 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.

“The Board continues to consider how additional monetary easing could support jobs as the economy opens up further,” the bank said.

Marcel Thieliant, an economist at Capital Economics expects the RBA to cut the cash rate target, the 3-year yield target and the interest rate on the term funding facility to 0.1 percent at its November meeting.

The bank is also expected to announce additional purchases of government bonds in order to reduce long-term interest rates.

Policymakers observed that the national recovery is likely to be bumpy and uneven and it will be some time before the level of output returns to its end 2019 level.

Treasurer Josh Frydenberg is set to deliver the federal budget 2020-21 later today.

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