Australia Keeps Rates On Hold

Australia’s central bank left its key interest rate and the target yield on three-year government bonds unchanged on Tuesday, as policymakers expect the economic downturn to be less severe than expected earlier.

At the monetary policy meeting, the board of Reserve Bank of Australia, governed by Philip Lowe, decided to maintain cash rate and the targeted yield on three-year government bonds of 25 basis points.

Policymakers said this accommodative approach will be maintained as long as it is required.

The RBA had reduced the key interest rate to the current record low of 0.25 percent at the March meeting. Also in March, the bank had introduced asset purchase programme to combat the downturn caused by the pandemic.

The board on Tuesday said it 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 percent target band.

The bank observed that the outlook, including the nature and speed of the expected recovery, remains highly uncertain and the coronavirus pandemic is likely to have long-lasting effects on the economy.

The Australian economy is going through a very difficult period and is experiencing the biggest economic contraction since the 1930s, Lowe said. More than 600,000 people lost their jobs in April amid government restrictions to control the spread of the coronavirus.

However, the governor said it is possible that the depth of the economic downturn will be less than earlier expected. The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely.

The rate decision came ahead of the release of quarterly national accounts on June 3. The economy is expected to shrink 0.3 percent sequentially in the first quarter, reversing a 0.5 percent rise in the fourth quarter of 2019.

Data from the Australian Bureau of Statistics showed that the current account surplus increased by A$6.67 billion to A$8.39 billion in the March quarter as Covid-19 effects impacted international trade.

The balance on goods and services surplus rose A$5.62 billion to A$19.18 billion. At the same time, the primary income deficit fell A$822 million to A$10.61 billion.

In a separate communiqué, the statistical office said the government expenses exceeded revenue in the March quarter, resulting in a net operating balance of A$7.29 billion.

Another report from ABS showed that gross operating profits increased 1.1 percent sequentially in the first quarter and wages and salaries remained flat. At the same time, inventories dropped 1.2 percent from the preceding three months.

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