Updated: Nov 4, 2020
At its meeting recently, the Board decided on a package of further measures to support job creation and the recovery of the Australian economy from the pandemic. With Australia facing a period of high unemployment, the Reserve Bank is committed to doing what it can to support the creation of jobs. Should you keep your money in the bank then or invest it?
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Encouragingly, the recent economic data have been a bit better than expected and the near-term outlook is better than it was three months ago.
Even so, the recovery is still expected to be bumpy and drawn out and the outlook remains dependent on successful containment of the virus.
The elements of today's package are as follows:
a reduction in the cash rate target to 0.1 per cent
a reduction in the target for the yield on the 3-year Australian Government bond to around 0.1 per cent
a reduction in the interest rate on new drawings under the Term Funding Facility to 0.1 per cent
a reduction in the interest rate on Exchange Settlement balances to zero
the purchase of $100 billion of government bonds of maturities of around 5 to 10 years over the next six months.
Under the program to purchase longer-dated bonds, the Bank will buy bonds issued by the Australian Government and by the states and territories, with an expected 80/20 split.
These bonds will be bought in the secondary market through regular auctions, with the first auction to be held this Thursday for Australian Government securities. Further details of the auctions are provided in the accompanying market notice.
The Bank remains prepared to purchase bonds in whatever quantity is required to achieve the 3-year yield target. Any bonds purchased to support this target would be in addition to the $100 billion bond purchase program.
At today's meeting, the Board also considered an updated set of economic forecasts.
The global economy has been recovering from the initial virus outbreaks, with the recovery most advanced in China.
Even so, output in most countries remains well short of pre-pandemic levels and recent virus outbreaks pose a downside risk to the outlook, particularly in Europe.
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