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SYDNEY, Nov 3 (Reuters) – Australia’s central bank cut interest rates to nearly zero on Tuesday and expanded its bond-buying program, as expected, a much-needed balm to help the economic recovery from the worst recession of the country in a generation.
The Reserve Bank of Australia (RBA) said it would buy A $ 100 billion ($ 70.41 billion) of government bonds with maturities of around five to 10 years over the next six months, with the first auction scheduled by Thursday.
The RBA also lowered its three-year bond yield target to 0.1%, from 0.25%, to align with the cash rate, which, it promised, will remain unchanged until inflation remains low. sustainably within your 2-3% target band.
The Australian dollar fell to $ 0.7040 from around $ 0.7055 before the meeting. The bonds rallied and five-year yields hit a record low of 0.257%.
“Given the outlook, the Board does not expect to increase the cash rate for at least three years,” Gov. Philip Lowe said in a statement after the meeting.
“The Board will keep the size of the bond purchase program under review, particularly in light of the evolution of the employment and inflation outlook. The Board is prepared to do more if necessary. “
Australia’s $ 2 trillion ($ 1.41 trillion) economy is in its first recession in three decades as the coronavirus pandemic forced companies to close their doors, leaving hundreds of thousands out of work. .
The unemployment rate hovers around 7%, having risen from around 5% before the COVID-19 pandemic. Economists say the actual level of unemployment would be even higher if those receiving government support were included.
While Australia has controlled the spread of the virulent disease and opened its economy earlier than expected, national and international borders remain closed, business investment is weak and consumer spending still tepid.
With Tuesday’s relaxation, the RBA is now running out of ammunition.
“Any additional support required by the Australian economy will have to come from fiscal policy and quantitative easing,” said CreditorWatch chief economist Harley Dale.
For its part, Australia’s conservative government has released A $ 300 billion in emergency stimulus to prop up growth this year, including A $ 17.8 billion in personal tax cuts approved by parliament last month. ($ 1 = AU $ 1.4203) (Information from Swati Pandey and Wayne Cole; Editing by Jacqueline Wong)
