Economic Buzz: RBA Holds Rates At Record Low, Says International Trade Remains Weak

Economic Buzz: RBA Holds Rates At Record Low, Says International Trade Remains Weak

Aug 04, 2020 12:08 IST capital market

Australias central bank maintained its interest rate at a record low and quantitative easing unchanged as the package unveiled in March is supporting the economy as expected. 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.

The central bank noted that the global economy is experiencing a severe contraction as countries seek to contain the coronavirus. Even though the worst of this contraction has now passed, the outlook remains highly uncertain. The recovery is expected to be only gradual and its shape is dependent on containment of the virus. While infection rates have declined in some countries, they are still very high and rising in others. International trade remains weak, although there has been a strong recovery in industrial activity in China over recent months.

Globally, conditions in financial markets remain accommodative. Volatility has declined and there have been large raisings of both debt and equity. The prices of many assets have risen substantially despite the high level of uncertainty about the economic outlook. Bond yields remain at historically low levels.

The Banks mid-March package of support for the Australian economy is working as expected. There is a very high level of liquidity in the Australian financial system and borrowing rates are at historical lows. Authorised deposit-taking institutions are continuing to draw on the Term Funding Facility, with total drawings to date of around $29 billion. Further use of this facility is expected over coming months.

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