RBA Retains Key Rate Near Zero
November 30 2020 - 8:13PM
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Australia's central bank maintained its key interest rate near
zero and pledged to avoid a rate hike for at least three years in
order to support employment growth and to bring inflation back to
the target range.
The policy board of the Reserve Bank of Australia headed by the
governor Philip Lowe decided on Tuesday to leave its cash rate
unchanged at a record low of 0.10 percent.
The central bank retained the target yield on the 3-year
Australian Government bond at around 0.1 percent, asset purchases
of A$100 billion and also the parameters of the Term Funding
Facility.
In November, the bank had reduced its cash rate by 15 basis
points and lowered the target yield on government bonds and agreed
to buy A$100 government bonds.
The RBA today said it will not increase the cash rate until
actual inflation is sustainably within the 2 to 3 percent target
range, the bank said. For this to occur, wages growth will have to
be materially higher than it is currently.
This will require significant gains in employment and a return
to a tight labor market. Given the outlook, the board is not
expecting to increase the cash rate for at least three years.
The board will keep the size of the bond purchase program under
review, particularly in light of the evolving outlook for jobs and
inflation. The board said it is prepared to do more if
necessary.
Regarding economic outlook, the bank said the recovery is still
expected to be uneven and drawn out and it remains dependent on
significant policy support.
In the RBA's central scenario, GDP is likely to reach its
pre-pandemic level by the end of 2021. According to central
scenario, the economy will grow around 5 percent next year and 4
percent over 2022.
The announcement came ahead of the release of quarterly national
accounts on Wednesday. GDP is expected to grow 2.5 percent
sequentially in the third quarter, reversing a 7 percent fall in
the second quarter.
The central bank forecast the unemployment rate to fall slowly
next year and to remain around 6 percent at the end of 2022.
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