Reserve Bank news

The Reserve Bank has opted to keep official interest rates unchanged at its latest policy meeting this afternoon. The cash rate currently sits at a record low 0.1%, where it has remained since early November."In Australia, the economic recovery is under way and recent data have generally been better than expected. This is good news, but the recovery is still expected to be uneven and drawn out and it remains dependent on significant policy support," said RBA Governor Philip Lowe in his post-meeting statement."In the RBA's central scenario, it will not be until the end of 2021 that the level of GDP reaches the level attained at the end of 2019. In the central scenario, GDP is expected to grow by around 5 per cent next year and 4 per cent over 2022."The central bank announced a number of changes to key policy rates last month, including a 15 basis point reduction to the cash rate, three-year bond yield target, and term funding facility rate.It also launched a quantitative easing program aimed at purchasing $100 billion worth of bonds with maturities of around five to ten years over a period of six months.So far, the RBA has bought $19 billion worth of government bonds and a further $5 billion of Australian government securities in support of the 3-year yield target. Its balance sheet has increased by around $130 billion this year.Lowe said the November package had already delivered substantial aid to the economy, and is helping to lower financing costs for borrowers and keep the exchange rate low. He also cautioned the government against withdrawing its fiscal stimulus, saying that while the economic outlook has picked up on news of a coronavirus vaccine, ongoing support will be necessary until it is widely available.

After weeks of foreshadowing, the Reserve Bank of Australia made the extraordinary decision to cut interest rates at its latest policy meeting this afternoon. The official cash rate now sits at 0.1% — the lowest it’s ever been.In his post-meeting statement, RBA Governor Philip Lowe said the move will help quicken the pace of economic recovery, and “the Board is prepared to do more if necessary.”"With Australia facing a period of high unemployment, the Reserve Bank is committed to doing what it can to support the creation of jobs. Encouragingly, the recent economic data have been a bit better than expected and the near-term outlook is better than it was three months ago," he said.The RBA also announced a number of changes to key policy rates aimed at keeping borrowing costs low. This includes trimming the Board’s three-year bond yield target and term funding facility rate from 0.25% to 0.1%.The interest rate paid on exchange settlement accounts will also be cut from 0.1% to zero. This applies to commercial bank deposits held with the RBA. Typically, the Board keeps the exchange settlement rate a quarter of a percentage point below the cash rate, but since March it has been held at 0.1%.By reducing it to zero, the Board hopes to encourage banks to lend out their cash, rather than keep it idle in the RBA’s strongbox.The RBA will also purchase $100 billion of government bonds with maturities of around five to ten years, officially putting it on the quantitative easing path. These purchases will take place over the next six months, with the first auction to be held this Thursday."Under the program to purchase longer-dated bonds, the Bank will buy bonds issued by the Australian Government and by the states and territories, with an expected 80/20 split," said Lowe."The combination of the RBA's bond purchases and lower interest rates across the yield curve will assist the recovery by: lowering financing costs for borrowers; contributing to a lower exchange rate than otherwise; and supporting asset prices and balance sheets.”More colour on the shape of economic recovery will be provided on Friday, when the RBA releases its quarterly statement on monetary policy.

The Reserve Bank of Australia looks poised to cut official interest rates by 0.15% next week, which would leave the cash rate at a record low 0.1%.In recent speeches the RBA has signalled a willingness to take the cash rate below its current setting while keeping it above zero. Speculation reached a fever pitch in the lead up to last month’s meeting but ultimately the Board decided against making a move.For Mozo’s banking expert Peter Marshall, November is almost certainly the month the RBA will opt for further easing.“It’s obvious that things are going to take a very long time to recover, and while the bank stood by to let the government have some clear air for the budget in October, it’s now ready to step in and support the budget measures,” he said.A number of economists have also backed a November cut. CBA chief economist Stephen Halmarick believes the Board will push further into the “conventional unconventional monetary policy space” next week. “This easing is expected to involve a cut in the three key interest rates – the cash rate target, the three-year bond yield target and the term funding facility target from 0.25% to 0.1%,” he said.“Critically, this easing of monetary policy is expected to be implemented at the same time as the RBA looks set to revise upwards their economic forecasts given the run of better economic data.”Westpac chief economist Bill Evans also anticipates a change in the bond purchasing program, though he does not expect the Board to set a specific quantity target.“It is already setting a price target for the three year rate. Fixing both price and quantity targets may lead to unexpected difficulties down the track,” he said. While the RBA's bias against negative interest rates has softened somewhat over the last six months, the possibility the cash rate will dip below zero remains unlikely.“There's no evidence that they have yet given such a move serious consideration, and they are likely to continue to rely on other methods of supporting the economy for some time yet,” said Marshall.

Despite speculation that an October rate cut was in the cards, the Reserve Bank has left official interest rates on hold in its meeting this afternoon. The cash rate remains at the historic low of 0.25%.

While economic output in Australia saw a significant contraction in March and April, minutes from the RBA’s June meeting suggest the current downturn could be “shallower than earlier expected.” Australia’s relative success in containing the virus and the Federal Government’s multiple stimulus measures have been instrumental in protecting the economy from collapse, the minutes said. “Households that were already receiving welfare payments had additional payments, and the JobKeeper program and increased JobSeeker payments had supported incomes for others. In some instances, households had received more income than usual.”But there are still plenty of hurdles ahead, with the RBA warning that reduced consumer demand and appetite for investment could prolong the downturn.Unemployment will also remain elevated for come time, though a consensus is emerging that the number of job losses won’t be as severe as initially expected.“The contraction in spending in late March and April had been accompanied by significant job losses, with total hours worked falling by 9 per cent in April. Timelier payroll data suggested that the pace of job losses had slowed towards the end of April,” the minutes read.“In some of the industries that had been most affected by the restrictions on activity, the number of jobs had stabilised or increased a little, suggesting that the total decline in hours worked may be less than had previously been feared.”However, members noted that an unusual number of Australians who lost their job in April did not actively search for new work, obscuring the overall picture of unemployment. What’s more, the share of workers who are still on their company’s payroll but working zero hours has also increased.  “While some of these workers were likely to have been supported through the JobKeeper program, others would have been stood down without pay and may have become unemployed since then,” the minutes read.

In a senate inquiry today, Reserve Bank Governor Philip Lowe suggested that the JobKeeper payment could be extended beyond its September expiry date, or potentially even survive in a different form.While the current downturn is not as severe as initially projected, Lowe warned that the economic stimulus should not be phased out too early.“If we have not come out of the current trough of economic activity, there will be - or there should be - a debate about how the JobKeeper program transitions into something else,” he said.The Federal Government rolled out the wage subsidy in late March to help preserve the connection between companies and employees. It has repeatedly said the program is only temporary. But Lowe said there may be a push to keep JobKeeper around for those in particularly hard-hit industries, such as the tourism sector, which may be struggling to stay afloat for months or even years to come.RELATED: Who is eligible for the government’s support payments?Lowe admitted that the program was prepared at a time of extreme uncertainty during which a six month hibernation of the economy seemed like a very real possibility.While that belief hasn’t exactly been borne out, a massive blow has been dealt to Australians’ confidence. The shape and timing of economic recovery will depend on how quickly that confidence is restored.Unemployment also remains high, with the latest labour force data to come out described by the RBA boss as “shocking.” Nearly 600,000 people lost their jobs in April, and that number is expected to increase over the coming months. “We know from previous sharp economic downturns that there is scarring in the labour market. People fall out of jobs and then have trouble getting back in and then we have more long-term unemployment,” Lowe said.Right now, the real rate of unemployment is obscured by the number of people who are working zero hours but still on their company’s payroll, as well as those who have exited the labour force completely.A more useful picture is provided by the number of hours worked, which declined by 9% in April. The RBA expects it to drop further in May, though not as sharply.Lowe also spoke of the need for a reform agenda centred around creating a favourable climate for businesses to “expand, invest, innovate and hire people.” A big part of that will involve rethinking both the tax system, which Lowe claims is not “optimally designed for growth,” and our approach to regulation. For information about the assistance available to households and businesses, along with tips to keep your finances in good health amid the current crisis, browse our guide to coronavirus and your finances.

It's clear that the coronavirus pandemic has put extreme pressure on the economy, but recent comments by Reserve Bank Governor Philip Lowe put the extent of the current crisis into clear focus.“Over the first half of 2020, we are likely to experience the biggest contraction in national output and national income that we’ve witnessed since the 1930s,” he said in a speech on Tuesday.The RBA is forecasting a drop in national output of 10% in the coming months, with most of the decline occurring in the June quarter. The number of out-of-work Australians will also see a steep increase.“The unemployment rate is likely to be around 10% by June, although I am hopeful that it might be lower than this if businesses are able to retain their employees on lower hours,” Lowe said.While the numerous stimulus packages introduced by the Government will help many weather the downturn, a dip in household income is to be expected. Consumer spending is also unlikely to recover in the near term, given the restrictions on movement and social activity currently being enforced. RELATED: Who is eligible for the government’s Coronavirus support payments? As for inflation, the RBA expects it to remain positive in underlying terms, but is bracing for a steep drop in the June quarter.“The large fall in oil prices, combined with the introduction of free childcare and the deferral or reduction in some price increases mean that it is quite likely that year-ended headline inflation will turn negative in June,” Lowe said.“If so, this would be the first time since the early 1960s that the price level has fallen over a full year.”Lowe admitted that as more economic data comes in over the coming months it will present a “very sobering picture of the state of our economy.” At the same time, he stressed that the current crisis is a temporary one and that the country’s institutions are well-placed to handle it.“As Australians digest this economic news, I would ask that we keep in mind that this period will pass, and that a bridge has been built to get us to the other side. With the help of that bridge, we will recover and the economy will grow strongly again,” he said.

Following a submission to the senate, the Reserve Bank of Australia (RBA) has expressed its concerns over social media giant, Facebook’s planned cryptocurrency, Libra.

The RBA’s final meeting of 2019 is only a few days away, and while there’s been some chatter about a potential cut, markets are fairly confident that the cash rate will be kept on hold in December, leaving February as the more likely date.

The RBA’s next meeting is only a few short weeks away, but recent comments by RBA Governor, Philip Lowe have sharply downgraded the chances of a November cut.