At its meeting today, the Board decided to maintain the current policy settings, including the targets
for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points.
The global economy is experiencing a severe contraction as countries seek to contain the coronavirus.
Even though the worst of this contraction has now passed, the outlook remains highly uncertain. The
recovery is expected to be only gradual and its shape is dependent on containment of the virus. While
infection rates have declined in some countries, they are still very high and rising in others.
International trade remains weak, although there has been a strong recovery in industrial activity in
China over recent months.
Globally, conditions in financial markets remain accommodative. Volatility has declined and there have
been large raisings of both debt and equity. The prices of many assets have risen substantially despite
the high level of uncertainty about the economic outlook. Bond yields remain at historically low
The Bank’s mid-March package of support for the Australian economy is working as expected. There
is a very high level of liquidity in the Australian financial system and borrowing rates are at
historical lows. Authorised deposit-taking institutions are continuing to draw on the Term Funding
Facility, with total drawings to date of around $29 billion. Further use of this facility is
expected over coming months.
Government bond markets are functioning normally alongside a significant increase in issuance. The
yield on 3-year Australian Government Securities (AGS) has been consistent with the target of around
25 basis points. The yield has, however, been a little higher than 25 basis points over recent
weeks. Given this, tomorrow the Bank will purchase AGS in the secondary market to ensure that the yield
on 3-year bonds remains consistent with the target. Further purchases will be undertaken as necessary.
The yield target will remain in place until progress is being made towards the goals for full employment
The Australian economy is going through a very difficult period and is experiencing the biggest
contraction since the 1930s. As difficult as this is, the downturn is not as severe as earlier expected
and a recovery is now underway in most of Australia. This recovery is, however, likely to be both uneven
and bumpy, with the coronavirus outbreak in Victoria having a major effect on the Victorian economy.
Given the uncertainties about the overall outlook, the Board considered a range of scenarios at its
meeting. In the baseline scenario, output falls by 6 per cent over 2020 and then grows by
5 per cent over the following year. In this scenario, the unemployment rate rises to around
10 per cent later in 2020 due to further job losses in Victoria and more people elsewhere in
Australia looking for jobs. Over the following couple of years, the unemployment rate is expected to
decline gradually to around 7 per cent.
The Board also considered other scenarios. A stronger recovery is possible if progress is made in
containing the virus in the near future. This progress would support an improvement in confidence and a
less cautious approach by households and businesses to their spending. On the other hand, if Australia
and other countries were to experience further widespread lockdowns, the recovery in both output and the
labour market would be delayed. Details on these scenarios will be provided in the Statement on
Monetary Policy on 7 August.
In each of the scenarios considered by the Board, inflation remains below 2 per cent over the
next couple of years. In the most recent quarter, CPI inflation fell to –0.3 per cent
in year-ended terms, reflecting lower oil prices and the effects of various policy measures, including
the decisions to make child care and some pre-school free for a period. Inflation is expected to return
to positive territory in the current quarter. Beyond that, given the ongoing spare capacity in the
economy, inflation is expected to average between 1 and 1½ per cent over the next
couple of years.
As Australians deal with the coronavirus, the economy is being supported by the substantial,
coordinated and unprecedented easing of fiscal and monetary policy. The Australian Government’s
recent announcement that various income support measures will be extended is a welcome development and
will support aggregate demand. It is likely that fiscal and monetary stimulus will be required for some
time given the outlook for the economy and the labour market.
The Board is committed to do what it can to support jobs, incomes and businesses in Australia. Its
actions are keeping funding costs low and assisting with the supply of credit to households and
businesses. This accommodative approach will be maintained as long as it is required. The Board 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.