The Reserve Bank has kept Australia’s official cash rate at the historic low of 0.25 per cent, with experts predicting it will remain at that level “for some time”.
At its April meeting this afternoon, the RBA voted to keep interest rates on hold just weeks after it was cut from 0.5 per cent to 0.25 per cent during an unscheduled meeting in mid-March as a result of the escalating coronavirus crisis.
It was the first time a rate cut has been announced outside a regular meeting since 1997, and is a glaring sign of just how severe the situation is becoming.
In a statement, Governor Philip Lowe said the Board had reaffirmed the targets for the cash rate and the yield on three-year Australian government bonds of 25 basis points, as well as the other elements of the package announced on March 19.
“The coronavirus remains first and foremost a very major public health issue, but it is also having very significant effects on economies and financial systems around the world,” he said.
“Many countries are expected to experience large economic contractions as a consequence of the public health response. Large increases in unemployment are also expected.
“Once the virus is contained, a recovery in the global economy is expected, with the recovery supported by both the large fiscal packages and the significant easing in monetary policy that has taken place.”
But he said there were “some signs that markets are working more effectively than they were a few weeks ago” which “partly reflects the substantial measures undertaken by central banks”.
“The co-ordinated monetary and fiscal response, together with complementary measures taken by Australia’s banks, will soften the expected contraction and help ensure that the economy is well placed to recover once the health crisis has passed and restrictions are removed,” he said.
“These various responses are providing considerable support to Australian households and businesses through what is a very difficult period. The Australian financial system is resilient. “It is well capitalised and in a strong liquidity position, with these financial buffers available to be drawn down if required to support the economy.”
He said the Board was committed to doing what it could to “support jobs, incomes and businesses” as Australia deals with the coronavirus.
“The comprehensive policy package announced last month will also support the expected recovery,” he said.
“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.
“The Board wishes the best to all Australians as our country deals with this very difficult situation.”
Most experts had predicted the cash rate would remain untouched today, as board members had already signalled it will likely remain lower bound at 0.25 per cent “for some time”.
“As such, the focus of RBA meetings will be on how the board assesses its QE measures and whether they may require adjusting,” Westpac said in a note on Monday.
CoreLogic’s Head of Research, Eliza Owen, said it was no surprise the RBA had left the cash rate on hold after an “extraordinary March period” in which the cash rate was reduced twice and unconventional monetary policy was introduced.
“The record-low rate of 0.25 per cent may be in place for years to come. No doubt the RBA will be closely monitoring the impact of record low interest rates and other stimulus measures on the economy,” she said.
“To date, the policy announcements from the RBA and other sectors of government have been well received with the overall level of stimulus now getting close to 17 per cent of Australian GDP.”
The RBA Shadow Board, based at The Australian National University, said it was “94 per cent confident that keeping the cash rate on hold is the right policy”.
It said the extraordinary events surrounding the COVID-19 pandemic were “certain to push Australia into recession” for the first time in 28 years, and that efforts by the government and the RBA to stem the economic downturn were “unprecedented”.
But Shadow Board member Dr Timo Henckel said it was tough to determine the impact of those efforts given how quickly the situation was unfolding.
“For example, while the latest official ABS figures show an unemployment rate in Australia of 5.1 per cent, this may well double within a couple of months due to the COVID-19 crisis,” he said.
“It is unclear to what extent the Government’s JobSeeker program will help workers remain attached to their employers.
“Looking ahead six months, the Shadow Board’s vote in favour of keeping the cash rate steady at 0.25 per cent is still very high – 88 per cent.”
Meanwhile, all 23 economists and experts surveyed in the Finder RBA Cash Rate Survey correctly predicted the RBA would hold the cash rate at 0.25 per cent today, after the board indicated it had no appetite to cut further.
John Rolfe of Elders Home Loans said not enough time has passed since the latest round of announcements.
“The recent financial support from the Federal and State Governments needs to flow through. The RBA needs to keep its powder dry in case this gets worse,” Mr Rolfe said.
Finder insights manager Graham Cooke said the unfolding coronavirus situation and its impact on the economy would likely have a huge impact on the Australian housing market.
“Many economists tell us they expect property price drops of 10 to 20 per cent,” he said.
“The biggest impact, however, is likely to be on sales volume. With auctioneers forced to allow only one-on-one home visits and virtual auctions, and with many Aussies losing their jobs, it is likely that the housing market will hit the breaks fairly quickly.
“Also, the announcement from banks that many homeowners will be allowed a repayment holiday means that the inevitable glut of homes due to hit the market may not do so all at once.
“The big question is – how long will this last, and how quickly can the market pick up after?
“For would-be first-time buyers with a deposit saved and a secure job – this could be a great opportunity for those who missed out on the property dips in 2019.”
– With wires
Originally published as RBA keeps cash rate on hold