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Bloomberg
Australia’s central bank kept its interest rate and yield target unchanged, while announcing it will end a three-month hiatus in bond buying, as Victoria state’s tighter and longer lockdown adds to headwinds.
Reserve Bank of Australia Governor Philip Lowe and his board left the cash rate and three-year bond yield target at 0.25% on Tuesday, as expected by most economists. The bank will purchase Australian government securities to keep yields consistent with the target, Lowe said.
Australian government bonds rallied after the governor’s statement. Three-year yields dropped 1.4 basis points to 0.255%, the biggest decline since June 11. Strategists were surprised by the decision to resume buying securities and the timing of the move.
The RBA is trying to navigate hit to economy from the effective isolation of Victoria, which accounts for almost a quarter of GDP, and the broader impact on sentiment with rising uncertainty.
The bank provided updated baseline scenarios for Australia’s outlook, predicting output will fall 6% over 2020 and grow by 5% in 2021.