Earlier today, the Reserve Bank of Australia announced a package of measures to support the recovery of the Australian economy. Commonwealth Bank’s economists, Stephen Halmarick and Gareth Aird, explain what impact these measures will have on the national economy.
As widely predicted, at the November Board meeting the Reserve Bank of Australia (RBA) reduced the official cash rate target from 0.25 per cent to 0.1 per cent.
In addition, the Board announced a reduction in the target for the yield on the 3-year Australian Government bond to around 0.1 per cent (from around 0.25 per cent), as well as a reduction in the interest rate on new drawings under the Term Funding Facility to 0.1 per cent (from 0.25 per cent).
The RBA also announced a reduction in the interest rate paid on exchange settlement balances to 0 basis points, and a commitment to purchase $A100 billion of government bonds of maturities of around 5 to 10 years over the next six months.
In recent weeks, both the RBA Governor Philip Lowe and Deputy Governor Guy Debelle made it clear that more monetary policy easing was coming – and that it would likely happen sooner rather than later.
In a speech last month, RBA Governor Philip Lowe suggested that previously there was little to be gained from further monetary easing whilst ever significant parts of the country were in lock-down.
“As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was the case earlier,” Mr Lowe said at the time.