RBA left monetary policy unchanged today as widely expected. The cash rate is held at 0.25%. The bank “will not increase the cash rate target until progress is being made towards” the dual mandate of full employment and inflation target.
Target for 3-year government bond yield is also kept at 0.25%. Global financial markets are working “more effectively” and Australian government bond markets has “improved”. Hence, RBA scaled back the size and frequency of purchases, which “to date have totalled around $50 billion”. Though, the 3-year yield target will “remain in place” and the bank is “prepared to scale up” the purchases if necessary.
In the baseline scenario for the economy, RBA said output would fall by around -10% over H1 2020 and around -6% over the year. There would be a bounce-back of 6% in 2021. Unemployment rate would peak at around 10% over the coming months and stay above 7% by the end of 2020. Inflation will remain below 2% target over the next few years in the various scenarios considered. In the baseline scenario, inflation will be at 1-1.5% in 2021 and gradually picks up further from there.
