Following two rate cuts in March, the RBA announced on Tuesday it is keeping rates at 0.25 of a percentage point.
“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.
Acknowledging that the Australian economy is going through a very difficult period, Mr Lowe said that the outlook would have been more challenging had it not been for the “substantial, co-ordinated and unprecedented fiscal and monetary response”.
“These policies are supporting the economy right now and will help when the recovery comes. They are supporting people’s incomes, maintaining the important connections between businesses and their employees, underpinning the supply of credit to businesses and households, and keeping borrowing costs low,” Mr Lowe said.
“The deferral of loan and other payments is helping people manage their cash flows.
“The Australian banking system, with its strong buffers of capital and liquidity, is also helping the economy traverse this difficult period.”
He admitted that the bank had considered a number of scenarios and explained that, in all of them, inflation remained below 2 per cent over the next few years.
“In the March quarter just passed, CPI inflation rose to 2.2 per cent, but it is expected to turn negative temporarily in the June quarter, due to falls in oil prices, the introduction of free childcare and deferrals of various price increases,” he said.
“Further out, in the baseline scenario, inflation is 1 to 1.5 per cent in 2021 and gradually picks up further from there.”
Given this outlook, Mr Lowe said, the bank will maintain its efforts to keep funding costs low in Australia and credit available to households and businesses.
He concluded: “The board is committed to do what it can to support jobs, incomes and businesses during this difficult period and to make sure that Australia is well placed for the expected recovery.
“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.”
