Yesterday, the Reserve Bank of Australia reduced the cash rate to 10 basis points from the current 25 basis points to better support the Australian economy as it recovers from COVID-19. The aim is to lower unemployment and help as many people and businesses get through a very difficult period. 

The package has three elements. These are:

• first, a reduction in the cash rate target, the three-year yield target and the interest rate on new drawings under the Term Funding Facility to 10 basis points, from the current 25 basis points.
• second, a reduction in the interest rate on Exchange Settlement balances to zero from the current 10 basis points.
• and third, the introduction of a program of government bond purchases. In particular, we are intending to buy $100 billion of government bonds over the next six months, purchasing bonds issued by the Australian Government as well as by the states and territories.

It is further noted that: ‘the Board judged that it is appropriate to take further steps today to support the economy. Unemployment is a major economic and social problem that damages the fabric of our society. So, it is important that it is addressed. The Board recognises that, in the context of the pandemic, the responsibility for job creation falls mainly on the shoulders of business and government. But the Reserve Bank can, and will, make a contribution too’. 

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