The Reserve Bank of Australia has kept the official interest rate at an all-time low and has stated that the road to recovery is not easy.
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The Reserve Bank of Australia has kept the official interest rate at 0. 1 percent, but has marked the economic path to recovery from the coronavirus pandemic, will be long and bumpy.
In its monthly monetary policy statement, the central bank said it would keep the current key interest rate at the historically low level of 10 basis points while the health crisis continued to suppress the global macroeconomic environment.
RBA Governor Philip Lowe said positive news about an incoming coronavirus vaccine had cheered sentiment. However, the central bank did not expect gross domestic product (GDP) to recover until the end of next year..
« The positive news about vaccines has boosted equity markets, lowered risk premiums and supported further increases in some commodity prices, » said Dr. Lion.
« In the RBA’s central scenario, GDP will only reach the level reached at the end of 2019 at the end of 2021. ”
Reserve Bank Governor Philip Lowe said the central bank did not expect GDP to recover until late next year. Image: Nikki ShortSource: News Corp Australia
At its November meeting, the RBA decided to cut the cash rate by 15 basis points to 0. 1 percent, the lowest point in history to ease the ongoing pressures of the pandemic.
Lowering interest rates helps by reducing the cost of financing for borrowers in the form of cheaper interest rates on loans.
Reduced interest rates are forcing banks to cut interest rates on all high-interest products such as home loans and deposit accounts.
Dr. Lowe said increased monetary and fiscal support would be required for some time and no rate hike would be made until inflation was within the target rate of 2-3 percent.
He also noted that unemployment rates are expected to rise. Current economic data shows that unemployment was 7 percent in October.
« The prolonged period of high unemployment and overcapacity is expected to lead to a subdued rise in wages and prices in the coming years, » said Dr. Lion.
The RBA says tackling higher unemployment is a national priority. Photo by William WEST / AFPSource: AFP
CommSec chief economist Craig James said Tuesday’s decision was encouraging. However, the RBA was “under no illusions” about the need for ongoing economic aid.
« Future decisions by the reserve bank and the state, territory and federal government will depend on: continued success in » flattening the curve « , adoption of virus treatments and vaccines, advances in the labor market, and advances in consumer confidence and spending », Said mr. James.
ANZ economist David Plank said the rate is unlikely to change for the next three years.
The RBA also announced that it will continue its unconventional monetary policy measures, which include a term finance facility that provides cheaper liquidity to the banking sector and a three-year bond purchase program.
In November, the RBA also announced another quantitative easing program worth $ 100 billion. USD, at which the central bank will buy five- to ten-year government bonds over the next six months.
Quantitative easing is a form of monetary policy implemented by central banks when interest rate cuts are no longer effective because the interest rate is either at or near zero.
The unconventional policy is intended to promote economic growth by increasing the supply of money in the financial markets.
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Reserve Bank of Australia, central bank, interest rate, official interest rate, monetary policy, Philip Lowe
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