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Home Australian Budget 2020 RBA maintains steady rates ahead of Federal Budget announcement

RBA maintains steady rates ahead of Federal Budget announcement

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The Reserve Bank of Australia (RBA) has kept the official cash rate at a steady, unprecedented low, as the Australian economy continues its slow recovery from the COVID-19 recession

The RBA has decided to maintain its cash rate target at 0.25 per cent, on the day the Australian government is due to unveil the long-awaited Federal Budget.

The central bank also chose to maintain the yield on three-year Australian Government bonds.

“The global economy is gradually recovering after a severe contraction due to the pandemic,” RBA Govenor Philip Lowe said in a statement released alongside the announcement.

“However, the recovery is uneven and its continuation is dependent on containment of the virus.”

“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.”

While the Australian unemployment rate is gradually decreasing, Mr Lowe has said that “fiscal and monetary support will be required” by the RBA and the Government “given the outlook for the economy and the prospect of high unemployment.”

Mr Lowe also said the bank’s policy package was working as expected, underpinning the supply of credit to households and businesses.

“There is a very high level of liquidity in the Australian financial system and borrowing costs are at record lows,” he said.

With the Budget deficit predicted to be upwards for $220 billion for the current financial year, this marks the largest deficit since World War II.

After the RBA released their rates decision, the Australian dollar briefly jumped (+0.4pc) to 72.08 US cents, but within minutes drifted back to where it was prior (71.9 US cents).

The official cash rate is currently at 0.13 per cent, much lower than the targeted 0.25 per cent, feeding into larger speculation from economists that the RBA may cut rates as soon as next month.

The rate cut speculation was fuelled by a speech from RBA’s Deputy Governor Guy Debelle on September 22, in which he said “the Board continues to assess other policy options” to combat inflation and unemployment.

Last month, the RBA increased the size of its term funding facility, which means the reserve bank will lend the banks collectively up to $200 billion at 0.25 per cent for three years.

The scheme was intended to assist the banks in lending money to SMEs struggling amidst the COVID-19 pandemic.

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Ellie Dudley
Ellie Dudley
Ellie Dudley is a journalist at Dynamic Business with a background in the startup space and current affairs reporting . She has a specific interest in foreign investment and the Australian economy.