RBA holds cash rate at 0.25%

The Reserve Bank of Australia (RBA) has left the cash rate on hold at 0.25 per cent despite the fact many predicted the Board would announce a drop to 0.1 per cent and potentially overshadow the Federal Budget announcement.

Instead, the RBA decided to maintain the current policy settings, including the targets for the cash rate. Westpac predicted last week that they would do so, with plans to drop the rate next month.

Today’s statement by RBA Governor Philip Lowe doesn’t directly forecast any drops, although it does admit the national recovery is “likely to be bumpy and uneven” saying it will be “some time before the level of output returns” to pre-COVID levels.

“The global economy is gradually recovering after a severe contraction due to the pandemic,” Dr Lowe said.

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

“While infection rates have declined in some countries, they have increased in others. The recovery is most advanced in China, where conditions have improved substantially over recent months. Globally, inflation remains very low and below central bank targets.

“Financial conditions remain accommodative around the world and supportive of the economic recovery.

“Financial market volatility is low and the prices of many assets have risen substantially despite the high level of uncertainty about the economic outlook.

“Bond yields are at historically low levels, as are interest rates for most businesses and households. The Australian dollar remains just a little below its peak of the past couple of years.

“The Australian economy experienced a sharp contraction in the June quarter, with output falling by 7 per cent. As difficult as this was, the decline in output was smaller than in most other countries and smaller than was earlier expected.

“A recovery is now under way in most of Australia, although the second-wave outbreak in Victoria has resulted in a further contraction in output there.

“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.”

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Nathan Jolly

Nathan Jolly was an in-house journalist with Elite Agent. He worked with the company from July 2020 to December 2020.