Rate kept at 0.25%, may last 3yrs: expert

Alex Druce and Steven Deare
(Australian Associated Press)

 

A record low cash rate of 0.25 per cent is likely to remain for at least three years as the economy recovers from the coronavirus pandemic, according to an economist.

The Reserve Bank on Tuesday opted not to change the rate after two coronavirus-inspired cuts in March reduced the figure.

The bank also reaffirmed a 25 basis-point yield target on three-year Australian government bonds after it introduced quantitative easing measures at a March 18 emergency meeting.

BIS Oxford chief economist Sarah Hunter said not only was the cash rate likely to remain at 0.25 per cent for at least three years but quantitative easing was likely to continue after the pandemic.

She said this would ensure the economy’s recovery.

Governor Philip Lowe, in a statement on the decision, said the bank had bought about $36 billion of government bonds in secondary markets, including bonds issued by the states and territories.

The bank also made its first drawings under the term funding facility on Monday, he said.

This would lower funding costs for banks and help lenders provide credit to businesses struggling with social distancing restrictions.

However, Mr Lowe said he expected a very large economic contraction to be recorded in the June quarter.

He expected unemployment to increase to its highest level for many years.

The Australian dollar rose by 0.0034 US cents to buy 61.21 US cents at 1436 AEST, shortly after the decision.

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