Interest Rate in Australia

Australia - Interest Rate

RBA keeps rates at all-time low in July; maintains target for government bond yields

At its monetary policy meeting on 7 July, 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%—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, with job losses topping 800,000 since March, although recent indicators show some signs of improvement as supportive fiscal and monetary measures have helped cushioned the economic blow from the pandemic. Meanwhile, the functioning of government bond markets has stabilized following the Bank’s interventions between March and May, in which it bought around AUD 50 billion of government bonds in secondary markets. The Bank also reiterated it stands ready to resume purchases if needed.

Looking forward, the Bank announced it will maintain the rate at its 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 uncertain, as much will depend upon the effectiveness of containment measures both domestically and globally, which will in turn weigh on consumers’ and investors’ spending decisions. That said, the RBA also reiterated that the downturn has been less severe than expected, thanks to a faster-than-expected easing of restrictions on economic activity and the joint policy efforts of the government and the RBA.

The next monetary policy meeting is scheduled for 4 August.

FocusEconomics panelists see the cash rate ending 2020 at 0.25% and 2021 at 0.30%.