At its meeting today, the Board decided to maintain the current policy settings, including the targets
for the cash rate, the yield on 3-year Australian Government bonds, and the parameters for the expanded
Term Funding Facility.
The global economy is gradually recovering after a severe contraction due to the pandemic. However, the
recovery is uneven and its continuation is dependent on containment of the virus. While infection rates
have declined in some countries, they have increased in others. The recovery is most advanced in China,
where conditions have improved substantially over recent months. Globally, inflation remains very low
and below central bank targets.
Financial conditions remain accommodative around the world and supportive of the economic recovery.
Financial market volatility is low and the prices of many assets have risen substantially despite the
high level of uncertainty about the economic outlook. Bond yields are at historically low levels, as are
interest rates for most businesses and households. The Australian dollar remains just a little below its
peak of the past couple of years.
The Australian economy experienced a sharp contraction in the June quarter, with output falling by
7 per cent. As difficult as this was, the decline in output was smaller than in most other
countries and smaller than was earlier expected. A recovery is now under way in most of Australia,
although the second-wave outbreak in Victoria has resulted in a further contraction in output there. The
national recovery is likely to be bumpy and uneven and it will be some time before the level of output
returns to its end 2019 level.
Labour market conditions have improved somewhat over the past few months and the unemployment rate is
likely to peak at a lower rate than earlier expected. Even so, unemployment and underemployment are
likely to remain high for an extended period. Wage and inflation pressures remain very subdued. The Bank
will publish a full set of updated forecasts next month.
Over the past six months, the Australian economy has been supported by a substantial easing of fiscal
policy. Public sector balance sheets in Australia are in good shape, which allows for continued support,
with the Australian Government budget to be announced this evening. Both fiscal and monetary support
will be required for some time given the outlook for the economy and the prospect of high
unemployment.
The Bank’s policy package is working as expected and is underpinning very low borrowing costs and
the supply of credit to households and businesses. There is a very high level of liquidity in the
Australian financial system and borrowing costs are at record lows. $81 billion of low-cost funding
for authorised deposit-taking institutions (ADIs) has been advanced under the initial allowance of the
Term Funding Facility. ADIs currently have access to a further $120 billion under this facility. As
this is drawn down, there will be a further very significant expansion of the Reserve Bank’s
balance sheet.
Government bond markets are functioning well, alongside a significant increase in issuance. Bond yields
are around record lows. Early in September, the Bank bought a further $2 billion of Australian
Government Securities (AGS) in support of its 3-year yield target, bringing total purchases of
government securities since March to $63 billion. Over the past couple of weeks, 3-year yields have
fallen to around 18 basis points as markets price in some probability of further monetary policy
easing.
The Board is committed to do what it can to support jobs, incomes and businesses in Australia. Its
actions, including last month’s decision to expand the Term Funding Facility, are keeping funding
costs low and assisting with the supply of credit. The Board views addressing the high rate of
unemployment as an important national priority. It will maintain highly accommodative policy settings as
long as is required and will 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 per cent target band. The Board continues to consider how additional monetary
easing could support jobs as the economy opens up further.
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