Record-low rates to remain for ‘at least’ three years

As widely anticipated, the Reserve Bank of Australia’s (RBA) monetary policy board has held the official cash rate at 0.25 per cent.

In a statement released following the decision, RBA governor Philip Lowe reiterated that the central bank would not consider changes to the cash rate until its long-term targets of unemployment and inflation were met.

“The board 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 per cent target band,” he said.

The RBA is expecting inflation to remain below 2 per cent over the next few years and is expecting the unemployment rate to hit 10 per cent in the coming months before ending 2020 at 7 per cent.

As a result, AMP chief economist Shane Oliver said the cash rate would remain on hold for “at least the next three years”.

“For those focused on the RBA’s cash rate, the next few years are likely to be pretty boring,” he said.

“The cash rate is at the RBA’s long stated lower bound and there is no value in taking it negative, so it won’t be cut any further.”

However, governor Lowe said the RBA remains prepared to employ alternative monetary policy measures to support the economy.

“[The central bank] will maintain its efforts to keep funding costs low in Australia and credit available to households and businesses,” he said.

“The board is committed to do what it can to support jobs, incomes and businesses during this difficult period and to make sure that Australia is well placed for the expected recovery.”

RBA expands capital program

Accordingly, following the board meeting, governor Lowe announced that the central bank would expand its criteria for repurchase (repo) transactions on the overnight money market.

The range of eligible collateral has been broadened to include Australian dollar securities issued by non-banks with an investment grade (IG) credit rating.

For long-term corporate debt securities, the minimum IG credit rating has been lowered to BBB-, down from AAA, and from A-1 to A-3 for short-term corporate debt securities.

According to Mr Lowe, the revision would “assist with the smooth functioning of Australian capital markets”.

This is the latest of several initiatives announced by the RBA in recent months, aimed at supporting liquidity in the Australian economy in response to market volatility caused by the COVID-19 outbreak.

The initiatives included the ramping up of repo transactions in the second half of March after investors rushed to offload securities on the secondary market.

[Related: Business credit growth hit 30-year high]