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Australia Monetary Policy June 2020

Australia: RBA keeps rates at all-time low in June; maintains quantitative easing measures

At its monetary policy meeting on 2 June, the Reserve Bank of Australia (RBA) decided to keep the cash rate unchanged at an all-time low of 0.25%. Moreover, it reaffirmed it will keep the target for three-year government bond yields at 0.25%—which it set at an extraordinary policy meeting held on 19 March—to help support the smooth functioning of financial markets.

The economy is going through a significant downturn, despite supportive fiscal and monetary measures, with job losses topping 600,000 in April. That said, the functioning of government bond markets has stabilized following the Bank’s recent intervention, in which it bought around AUD 50 billion of government bonds in secondary markets. Moreover, the Bank reiterated it stands ready to resume purchases if needed.

Looking forward, the Bank announced it will maintain rates at their current all-time lows until the labor market returns towards full employment and inflation rises sustainably within the 2.0–3.0% target range. The outlook is shrouded by elevated uncertainly, as much will depend on possible coronavirus flare-ups both domestically and globally. That said, the RBA also commented for the first time that it is possible that the downturn will be less severe than expected, thanks to a significant decline in new infections and faster-than-expected easing of restrictions on economic activity.

The next monetary policy meeting is scheduled for 7 July.

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