Following two rate cuts in March, the RBA has kept rates at 0.25 of a percentage point for the third consecutive month, as it continues to support the economy weighed down by the coronavirus crisis.
“At its meeting today, the board decided to maintain the current policy settings, including the targets for the cash rate and the yield on three-year Australian government bonds of 25 basis points,” RBA governor Philip Lowe confirmed.
He reiterated that 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.
Acknowledging that the Australian economy is going through a very difficult period and is experiencing the biggest economic contraction since the 1930s, Mr Lowe, however, said that the depth of the downturn could be less than earlier expected.
“In April, total hours worked declined by an unprecedented 9 per cent and more than 600,000 people lost their jobs, with many more people working zero hours. Household spending weakened very considerably and investment plans are being deferred or cancelled,” Mr Lowe said.
“Notwithstanding these developments, it is possible that the depth of the downturn will be less than earlier expected.
“The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely. And there are signs that hours worked stabilised in early May, after the earlier very sharp decline.”
He, however, underlined that the outlook, including the nature and speed of the expected recovery, remains highly uncertain and the pandemic is likely to have long-lasting effects on the economy.
“In the period immediately ahead, much will depend on the confidence that people and businesses have about the health situation and their own finances,” he said.
“The substantial, co-ordinated and unprecedented easing of fiscal and monetary policy in Australia is helping the economy through this difficult period.”
He confirmed the RBA’s view that it is likely that this fiscal and monetary support will be required for some time.
“The board is committed to do what it can to support jobs, incomes and businesses and to make sure that Australia is well placed for the recovery. Its actions are keeping funding costs low and supporting the supply of credit to households and businesses,” Mr Lowe said.
“This accommodative approach will be maintained as long as it is required.”