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

--RBA Statement following the July 7 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 has experienced 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. Leading indicators have generally picked up

recently, suggesting the worst of the global economic contraction has now

passed. Despite this, the outlook remains uncertain and the recovery is expected

to be bumpy and will depend upon containment of the coronavirus. Over the past

month, infection rates have declined in many countries, but they are still very

high and rising in others.

     Globally, conditions in financial markets have improved. Volatility has

declined and there have been large raisings of both debt and equity. The prices

of many assets have risen substantially despite the high level of uncertainty

about the economic outlook. Bond yields 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 not purchased

government bonds for some time, 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 yield 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 continuing to draw on the Term Funding Facility, with total

drawings to date of around $15 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 contraction since the 1930s. Since March, an

unprecedented 800,000 people have lost their jobs, with many others retaining

their job only because of government and other support programs. Conditions

have, however, stabilised recently and the downturn has been less severe than

earlier expected. While total hours worked in Australia continued to decline in

May, the decline was considerably smaller than in April and less than previously

thought likely. There has also been a pick-up in retail spending in response to

the decline in infections and the easing of restrictions in most of the country.

     Notwithstanding the signs of a gradual improvement, the nature and speed of

the economic recovery remains highly uncertain. Uncertainty about the health

situation and the future strength of the economy is making many households and

businesses cautious, and this is affecting consumption and investment plans. The

pandemic is also prompting many firms to reconsider their business models. As

some businesses rehire workers as demand returns, others are restructuring their

operations.

     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 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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