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Australia Monetary Policy August 2020

Australia: RBA keeps rates at all-time low in September; ramps up cheap bank funding

At its monetary policy meeting on 1 September, the Reserve Bank of Australia (RBA) decided to keep the cash rate unchanged at its all-time low of 0.25%. Moreover, the Bank reaffirmed that it will keep the target for three-year government bond yields at 0.25%, and announced that it will increase the size and extension of its cheap financing offer to banks.

The pandemic and associated lockdown measures have hammered the economy and the labor market in the first half of the year, driving the RBA’s accommodative stance. However, recent data suggests that activity bottomed out in Q2 and that supportive fiscal and monetary measures are helping the economy to stabilize. That said, the recovery is set to be bumpy, partially due to the coronavirus outbreak in Victoria, and although the functioning of financial markets has stabilized thanks to the Bank’s interventions, the notable blow from the pandemic has prompted the RBA to ramp up funding measures in order to support the economy.

Moving forward, the Bank reaffirmed its commitment to maintain the cash rate at its current all-time low until the labor market returns to full employment and inflation rises sustainably within the 2.0%–3.0% target range. The outlook remains highly uncertain, however, which could weigh on consumers’ and investors’ spending decisions ahead.

The next monetary policy meeting is scheduled for 6 October.

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