Rates on hold and eye on rebound
THE Reserve Bank kept the official cash rate steady at a record low 0.25 per cent yesterday, leaving it with the option of cutting further if the pandemic-induced recession worsens.
The central bank last cut the cash rate in March as the crisis started to grip the nation. Just a few hours before Treasurer Josh Frydenberg handed down the Federal Budget yesterday, the RBA announced the cash rate would remain steady.
“The global economy is gradually recovering after a severe contraction due to the pandemic. However, the recovery is uneven and its continuation is dependent on containment of the virus,” governor Philip Lowe said. “The national recovery is likely to be bumpy and uneven, and it will be some time before the level of output returns to its end 2019 level. Labour market conditions have improved somewhat over the past few months, and the unemployment rate is likely to peak at a lower rate than earlier expected.
“Even so, unemployment and underemployment are likely to remain high for an extended period. Wage and inflation pressures remain very subdued.”
Mr Lowe said the bank’s policy package was working as expected and underpinning the supply of credit to households and businesses.
Philip Lowe.
“There is a very high level of liquidity in the Australian financial system, and borrowing costs are at record lows,” he said.
Creditorwatch chief economist Harley Dale said it was an appropriate decision.
“RBA governor Philip Lowe has repeatedly called on state and territory governments to step up to the plate in terms of spending and investment to assist in generating the economic recovery Australia requires,” Mr Dale said. “In due course, the RBA will likely reduce the OCR (official cash rate) to 0.10 per cent, but today wasn’t the day.”
If it had done so yeterday, the central bank would have been left “out of ammunition”, Mr Dale said.
Graham Cooke, insights manager at Finder, said holding fire suggested the RBA wanted to assess the budget in detail before making a decision about further moves.