MNI: RBA Leaves Key Cash Rate Unchanged At 25 bps - Text

--RBA Statement following the June 2 policy meeting

     SYDNEY (MNI) - The Reserve Bank of Australia left its key benchmark

interest rate unchanged at 25 bps Tuesday. It also reconfirmed the 0.25% yield

target for the 3-year government bond.

     Following is the text of the accompanying statement.

===========================================================================

     At its meeting today, the Board decided to maintain the current policy

settings, including the targets for the cash rate and the yield on 3-year

Australian Government bonds of 25 basis points.

     The global economy is experiencing a severe downturn as countries seek to

contain the coronavirus. Many people have lost their jobs and there has been a

sharp rise in unemployment. Over the past month, infection rates have declined

in many countries and there has been some easing of restrictions on activity. If

this continues, a recovery in the global economy will get under way, supported

by both the large fiscal packages and the significant easing in monetary

policies.

     Globally, conditions in financial markets have continued to improve,

although conditions in some markets remain fragile. Volatility has declined and

credit markets have progressively opened to more firms. Bond rates remain at

historically low levels.

     In Australia, the government bond markets are operating effectively and the

yield on 3-year Australian Government Securities (AGS) is at the target of

around 25 basis points. Given these developments, the Bank has purchased

government bonds on only one occasion since the previous Board meeting, with

total purchases to date of around $50 billion. The Bank is prepared to scale-up

its bond purchases again and will do whatever is necessary to ensure bond

markets remain functional and to achieve the yield target for 3-year AGS. The

target will remain in place until progress is being made towards the goals for

full employment and inflation.

     The Bank's market operations are continuing to support a high level of

liquidity in the Australian financial system. Authorised deposit-taking

institutions are making use of the Term Funding Facility, with total drawings to

date of around $6 billion. Further use of this facility is expected over coming

months.

     The Australian economy is going through a very difficult period and is

experiencing the biggest economic contraction since the 1930s. In April, total

hours worked declined by an unprecedented 9 per cent and more than 600,000

people lost their jobs, with many more people working zero hours. Household

spending weakened very considerably and investment plans are being deferred or

cancelled.

     Notwithstanding these developments, it is possible that the depth of the

downturn will be less than earlier expected. The rate of new infections has

declined significantly and some restrictions have been eased earlier than was

previously thought likely. And there are signs that hours worked stabilised in

early May, after the earlier very sharp decline. There has also been a pick-up

in some forms of consumer spending.

     However, the outlook, including the nature and speed of the expected

recovery, remains highly uncertain and the pandemic is likely to have

long-lasting effects on the economy. In the period immediately ahead, much will

depend on the confidence that people and businesses have about the health

situation and their own finances.

     The substantial, coordinated and unprecedented easing of fiscal and

monetary policy in Australia is helping the economy through this difficult

period. It is likely that this fiscal and monetary support will be required for

some time.

     The Board is committed to do what it can to support jobs, incomes and

businesses and to make sure that Australia is well placed for the recovery. Its

actions are keeping funding costs low and supporting the supply of credit to

households and businesses. This accommodative approach will be maintained as

long as it is required. 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.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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