Australia’s central bank holds rates

Bloomberg

Australia’s central bank expanded a lending facility for banks as it kept key policies unchanged, and signalled a renewed willingness to explore additional measures to boost an economy still mired in recession.
“The board will maintain highly accommodative settings as long as is required,” Reserve Bank chief Philip Lowe said after keeping both the cash rate and three-year yield target unchanged at 0.25%. In an addition to the key final paragraph of guidance, the governor added that it “continues to consider how further monetary measures could support the recovery.”
Under the increased Term Funding Facility, banks will have access to additional funding equivalent to 2% of their outstanding credit, at a fixed rate of 25 basis points for three years. They will be able to draw on this up until the end of June 2021, it said. Lenders have so far drawn A$52 billion ($38.5 billion) and Tuesday’s change brings the total available to around A$200 billion, Lowe said.
The RBA is coordinating with the government’s wide-ranging stimulus program by keeping rates near zero and purchasing bonds to keep borrowing costs down across the economy. The central bank has bought about A$60 billion of government securities since it initiated the bond-buying program in March and Lowe said more will be undertaken as needed.
Gareth Aird, senior economist at Commonwealth Bank of Australia, said Lowe’s addition to the final paragraph was very important.
“This is the closest that we have been since the emergency mid‑March board meeting to the governor signalling that more monetary easing could be on the offering in his post meeting statements,” he said. “We do not know what form additional easing may take. And we don’t think that more easing is imminent. But it does suggest a slight shift in the governor’s thinking.”
Lowe, in a July speech, highlighted a discussion at that month’s policy meeting on alternative options to those undertaken by the central bank in March.
While the governor said the board had concluded there was no need to adjust its package, he added it hadn’t ruled out future changes to the package’s configuration.
While parts of Australia have reopened for business, Victoria’s outbreak and renewed lockdown has damaged confidence and shut state borders. The RBA reckons that, as a result, unemployment is set to hit 10% later this year and the national economy is unlikely to grow in the current quarter.