At the July meeting, RBA left the cash rate unchanged at 0.25% and maintained yield curve targeting for 3-year bonds at 0.25%. While acknowledging that economic contraction has been less severe than previously anticipated, policymakers left economic forecasts largely intact. The cautiousness was driven by the latest round of lockdown amidst second wave of coronavirus. Same as previous months, the central bank pledged that it would “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% target band”. It also reiterated the commitment to “do what it can to support jobs, incomes and businesses in Australia“.
As noted in the policy statement, the members described overall financial conditions as “accommodative“. They also acknowledged that the policy package announced in mid-March is “working as expected” and “there is a very high level of liquidity in the Australian financial system and borrowing rates are at historical lows”. Affirming the view in July, RBA suggested that “the downturn is not as severe as earlier expected“. Yet, it cautioned that the recovery is “likely to be both uneven and bumpy, with the coronavirus outbreak in Victoria having a major effect on the Victorian economy”. On the economic assessment, the central bank left base scenario unchanged, projecting the GDP to decline -6% this year and the unemployment rate to peak at around 10%. It also suggested that “a stronger recovery is possible if progress is made in containing the virus in the near future”.
All monetary policy measures remained intact. The cash rate stays at the record low level of 0.1%. The forward guidance affirmed that stance that the policy rate will not be altered “until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3%”. RBA will continue to target the 3-year bond yield at 0.25%. The only news in the statement is that the yield on 3-year bonds has “been a little higher than” 25 bps points over recent weeks and the central bank will make purchase in the secondary market to ensure that the yield remains consistent with the target. Finally, on the Term Funding Facility, RBA noted that banks had “total drawings to date of around AUD$29B billion” and that “further use of this facility is expected over coming months”.