MNI REVIEW: RBA On Hold As Policy Seen Working; Signs Of Hope

--Despite Severe Downturn, RBA Says May Be Less Than First Feared

By Lachlan Colquhoun

     LONDON (MNI) - The Reserve Bank of Australia left interest rates on hold at

a record low 0.25% Tuesday, stating the depth of the nation's virus-driven

downturn "may be less than earlier expected."

     The decision to leave rates on hold for a third consecutive meeting was

widely expected and the RBA has said it is satisfied with the way its policy

measures, which also includes a program of buying government bonds and a low

interest funding facility for banks, are working in the economy.

     The RBA again said it is prepared to "scale up" its bond purchase program

if necessary "to ensure bond markets remain functional and to achieve the target

yield for 3-year Australian Government Securities" of 0.25%. The central bank

has already spent AUD50 billion in the secondary market, it said.

     Drawdowns from the Bank's AUD90 billion Term Funding Facility for

commercial banks to access low interest funds to lend to small business had

amounted to AUD6 billion so far, with further use "expected over coming months."

     On interest rates, the RBA said its "accommodative approach will be

maintained as long as possible."

     There was no suggestion policymakers considered further rate cuts or

unconventional measures beyond those already announced.

     --ENCOURAGING SIGNS

     Although the RBA notes the Australian economy is experiencing the biggest

contraction since the 1930s, it said with the easing of the pandemic

restrictions there are signs that total hours worked stabilised in early May.

     There had also been a pick-up in some forms of consumer spending, the

statement added.

     With infection rates falling and restrictions easing across in many parts

of the globe and a gradual easing of restrictions, a recovery in the economy

will start to get under way, supported by both the large fiscal packages and the

significant easing in monetary policies.

     The minutes of the June meeting will be released on June 16.

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

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