Cash rate at record low
RBA cuts rates to record low, still has more ammunition
THE Reserve Bank has cut interest rates to a record low in an attempt to boost the economy.
RBA governor Philip Lowe said the central bank still had tools at its disposal despite cutting the cash rate from 0.25 per cent to 0.1 per cent.
THE Reserve Bank says it is not out of firepower despite cutting the cash rate to almost zero in an attempt to give the economy a fresh leg- up.
And the nation, in practical terms, remains mired in recession despite the likelihood the economy grew the past quarter, RBA governor Philip Lowe says.
But the use of negative interest rates in Australia remains “extraordinarily unlikely”, albeit impossible to rule out, Dr Lowe has said.
Speaking on Tuesday after the central bank cut the cash rate from 0.25 per cent to a fresh all- time low of 0.1 per cent, Dr Lowe said the RBA still had tools at its disposal.
The rate cut was one in a sweeping series of measures announced by the RBA to cut the cost of credit — part of a campaign to create jobs in an economy still reeling from the pandemic.
Among them is a formal quantitative easing program that broadens the scope and scale of a money- printing scheme launched this year.
Dr Lowe revealed that over the next six months, the RBA would buy $ 100bn worth of bonds — previously issued by the federal, state and territory governments — from other investors.
In March, as the pandemic was rapidly developing, it started buying such bonds as a way of pushing more money into the economy.
But it had not put a specific dollar amount, or quantity, on that scheme, meaning the program differed from the quantitative easing, or QE, schemes that have been used by other central banks.
The RBA’s original money- printing program will run alongside the scheme unveiled yesterday.
Westpac chief economist Bill Evans said that meant the announcement went further than widely forecast.
“These moves are more aggressive than we had expected and the governor has certainly left open the possibility for further QE,” he wrote in a research report.
Deutsche Bank economist Phil ODonaghoe said that based on overseas precedents,
it was likely the RBA would extend the program after the initial six- month scheme.
The RBA on Tuesday also announced cuts to other key interest rates, including the rate retail banks are paying to tap a cut- price lending scheme that was also launched in March.
National Australia Bank’s economics team said the central bank’s actions “will see the structure of interest rates pushed even lower across the economy”.
“Low rates have played an important role in supporting the economy and will continue to do so as the recovery unfolds,” NAB economists said in a report for investors.
But they cautioned the RBA’s efforts would “only
have a marginal impact” and governments would need to continue stimulating the economy through fiscal policy.
At 0.1 per cent, the cash rate is just a fraction of the level that marked its floor in 2009, amid the global financial crisis.
But Dr Lowe, moving to pre- empt concerns the cash rate was now barely above zero, said the central bank was “not out of firepower”.
“We have additional monetary policy options and we are prepared to use them if the circumstances require,” he said.
Dr Lowe said he couldn’t “completely and irrevocably” rule out the prospect of a negative interest rate.