MNI REVIEW: RBA Rates On Hold, Expands OMO Collateral List

--RBA Sees Economy Contracting 6% In 2020, Recovering 2021

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia kept its broad policy tools

unchanged Tuesday, leaving interest rates unchanged and re-affirming the target

yield on three-year government bond. However, it moved to ease the lending

criteria on its overnight monetary operations, extending the list of eligible

collateral to help maintain smooth functioning of the capital markets.

     Although seeing current market operations continuing to underpin the flow

and low cost of credit to the domestic economy, the Bank said it will expand the

list of accepted collateral to include securities issued by non-bank

corporations with an investment grade credit rating "to assist the smooth

operating of the capital markets."

     --RATES HELD

     The benchmark cash rate was held at 0.25%, as was the target yield on the

benchmark 3-year government bond. Noting success in achieving this yield, the

RBA said it had scaled back its bond purchases, adding that the target will

remain in place "until progress is being made towards the goals for full

employment and inflation."

     "The Bank is prepared to scale up these purchases again and will do

whatever is necessary to ensure bond markets remain functional and to achieve

the yield target for 3-year Australian Government Securities," the RBA added.

     The RBA announced its main program of responses to the Covid-19 pandemic

disruptions after an out-of-cycle meeting in March, with Governor Philip Lowe

saying they are likely to be in place for some time.

     --OUTLOOK

     The RBA outlined a "baseline scenario" for the Australian economy with

unemployment seen peaking at 10% and remaining above 7% next year, with

inflation below 2% over the next few years.

     GDP was likely to fall by around 10% over the first half of 2020 and by

around 6% over the full year before bouncing back 6% in 2021, the RBA added.

     Although noting that the Australian economy is going through a "very

difficult period" with considerable uncertainty on the outlook, the RBA said its

policy settings, along with coordinated with fiscal measures from the Federal

Government, are supporting the economy and "will help when the recovery comes."

     More detail on the RBA outlook will come in the quarterly Statement on

Monetary Policy to be released on May 8.

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

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