RBA keeps cash rate on hold.
At its April Board meeting, the RBA has decided to leave the official cash rate at 0.25% and reaffirmed elements of the package it announced on 19 March.
In a statement accompanying the decision, RBA Governor Philip Lowe said –
The coronavirus remains first and foremost a very major public health issue, but it is also having very significant effects on economies and financial systems around the world. Many countries are expected to experience large economic contractions as a consequence of the public health response. Large increases in unemployment are also expected. Once the virus is contained, a recovery in the global economy is expected, with the recovery supported by both the large fiscal packages and the significant easing in monetary policy that has taken place.
The Bank has injected substantial liquidity into the financial system through its daily open market operations to support credit and maintain low funding costs in the economy. It will continue to ensure that the financial system has sufficient liquidity. Given the substantial liquidity that is already in the system and the commencement of the Term Funding Facility, the daily open market operations are likely to be on a smaller scale in the near term. Operations at longer terms will continue, but the frequency of these operations will be adjusted as necessary according to market conditions.
The first drawings under the Term Funding Facility were made yesterday. This facility will help lower funding costs across the banking system and provides an incentive for lenders to support credit to businesses, especially small and medium-sized businesses. Authorised deposit-taking institutions have access to at least $90 billion in funding under this facility.
There is considerable uncertainty about the near-term outlook for the Australian economy. Much will depend on the success of the efforts to contain the virus and how long the social distancing measures need to remain in place. A very large economic contraction is, however, expected to be recorded in the June quarter and the unemployment rate is expected to increase to its highest level for many years.
The coordinated monetary and fiscal response, together with complementary measures taken by Australia’s banks, will soften the expected contraction and help ensure that the economy is well placed to recover once the health crisis has passed and restrictions are removed…The Australian financial system is resilient. It is well capitalised and in a strong liquidity position, with these financial buffers available to be drawn down if required to support the economy.
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.
Please feel free to get in touch with Bez Esquivel if you have any questions about what this decision means to you or if there’s anything else you’d like to discuss.