Australian central bank to issue rate decision

The Reserve Bank of Australia (RBA) will issue an interest rate decision today. The RBA is expected to leave the

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Photo: REUTERS/Sandra Sanders

The Reserve Bank of Australia (RBA) will issue an interest rate decision today.

The RBA is expected to leave the country’s lending rate unchanged at a record low of 0.25%. Australia is currently undergoing its biggest economic contraction since the 1930s due to a pandemic-induced recession. While signs of gradual improvement have begun to emerge—the economy is expected to expand 1.3% this quarter and the next—the RBA has pledged to bolster recovery by keeping rates at 0.25% for at least the next two years, while providing cheap funding to banks.

The need to maintain job support programmes will likely outweigh concerns over inflation. Forecasts for consumer prices have been marked down to 0.6% for 2020 and 1.6% for 2021, after April’s predictions of 1.5% and 2.0%, respectively. In the likely case that wage subsidy programmes for businesses like “JobKeeper”—which awards qualifying employers $1,500 per employee every two weeks—are maintained and cases of COVID-19 remain low, Australia’s economy is expected to weather the current crisis in the medium- to long-term. Moreover, as long as the economy remains under full employment and inflation stays within the RBA’s 2%-3% target, the bank is unlikely to adjust its 0.25% benchmark.

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