In the Statement on Monetary Policy, RBA noted that ” despite the somewhat better recent outcomes in Australia, the recovery was expected to be extended and bumpy”. Hence, “to further support the recovery and complement the significant support coming from fiscal policy, the board therefore decided to introduce a further package of measures.”.
The measures announced on Tuesday included reduction in cash rate target and 3-year AGS yield target to 0.10%. Bedsides, measures include purchases of AUD 100B of government bonds of maturities from 5 to 10 years for the next 6 months.
On interest rate, RBA said “interest rates have been lowered as far as it makes sense to do so in the current environment… The board considers that there is little to be gained from short-term interest rates moving into negative territory and continues to view a negative policy rate as extraordinarily unlikely.”
“At its future meetings, the board will be closely monitoring the impact of bond purchases on the economy and on market functioning, as well as the evolving recovery from the pandemic, including the outlook for jobs and inflation,” the statement noted.
In the new economic projections, RBA expected a shallower GDP contraction of -4% in the year ended 2020. But 2021 GDP rebound was kept unchanged at 5%. Unemployment rate would peak lower at 8% this year (versus 10%) and drop back to 6.5% by the end of 2021 (versus 6.5%). 2020 inflation was revised down to 0.50% then climb back to 1.0% in December 2021 (unchanged).
