Australia Monetary Policy November 2020

Australia

Australia: RBA cuts rates to new all-time low in November; ramps up bond-buying plans

November 3, 2020

At its monetary policy meeting on 3 November, the Reserve Bank of Australia (RBA) decided to cut the cash rate from 0.25% to a new all-time low of 0.10%. Moreover, the Bank reduced the target for three-year government bond yields from 0.25% to around 0.10%, and announced that it will increase the size and extension of its bond-buying plans.

The global health crisis and associated lockdown measures dealt a severe blow to the economy in H1 and hit the labor market, prompting the RBA to strengthen its accommodative stance. Although recent data suggests that a recovery is underway following Q2’s crash, risks remain tilted to the downside due to possible virus outbreaks. Therefore, the Bank expects the recovery to be bumpy, which has led it to further ramp up funding measures in a bid to support the economy. These include the purchase of AUD 100 billion of government bonds over the next six months in the secondary market, in order to lower financing costs and support credit supply.

The Bank struck a notably dovish in its communiqué, stating that it expects to maintain the cash rate at its current all-time low for at least three years, until the labor market returns to full employment and inflation rises sustainably within the 2.0%–3.0% target range. Moreover, it added that the Board could further ramp up the bond purchase program or take additional action if necessary, to ensure the 0.10% target rate for three-year government bonds is achieved.

The next monetary policy meeting is scheduled for 1 December.

FocusEconomics panelists are still assessing the latest developments.


Author: Massimo Bassetti, Senior Economist

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Australia Monetary Policy Chart


Australia Monetary Policy November 20 20

Note: RBA Cash Rate in %.
Source: Reserve Bank of Australia (RBA).


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