Reserve Bank keeps cash rate steady at June meeting

The Reserve Bank has left its cash rate and other policy tools unchanged after its June board meeting.

RBA governor Dr Philip Lowe. Picture: AAP

The Reserve Bank has left its cash rate and other policy tools unchanged after its June board meeting.

RBA Governor Phillip Lowe said the Board decided to maintain current policy settings, including the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points.

Notwithstanding a faster-than-expected easing of coronavirus restrictions which has seen the economy tracking above the RBA’s baseline scenario, he again noted that it is “going through a very difficult period and there’s still considerable uncertainty about the outlook”.

“Given this outlook, the bank will maintain its efforts to keep funding costs low in Australia and credit available to households and businesses,” Dr Lowe said.

“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.”

The Australian dollar rose slightly to US67.9c following the news.

While noting that “it is possible that the depth of the downturn will be less than earlier expected” as the rate of new infections has declined significantly and some restrictions have been eased earlier than previously thought likely, Dr Lowe warned that the Australian economy is experiencing its biggest contraction since the 1930s.

The outlook, including the nature and speed of the expected recovery, “remains highly uncertain and the pandemic is likely to have long-lasting effects on the economy”, he added ahead of Wednesday’s release of crucial national accounts data for the March quarter.

“In the period immediately ahead, much will depend on the confidence that people and businesses have about the health situation and their own finances.”

Similarly, the global economy is “experiencing a severe downturn” amid attempts to contain the virus, albeit if infection rates and restrictions continue to ease “a recovery will get under way”.

And while global financial markets have improved, “conditions in some markets remain fragile.”

Dr Lowe reiterated that the RBA was “prepared to scale-up its bond purchases again and will do whatever is necessary” to ensure bond markets remain functional and to achieve the yield target for 3-year Australian government bond yield, and it will remain in place until progress is being made towards the goals for full employment and inflation.