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Economist at UOB Group Lee Sue Ann assesses the recent RBA event.

Key Quotes

“Following its traditional Melbourne Cup Day meeting, the Reserve Bank of Australia (RBA) announced a slew of easing measures including:

  • 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.
  • a reduction in the interest rate on Exchange Settlement balances to zero from the current 10 basis points.
  • the introduction of a program of government bond purchases. In particular, the RBA intends to buy A$100 billion of government bonds with maturities of around 5-10 years over the next six months. These will comprise of securities issued by the federal government and the states and terrritories at an expected 80:20 split.

“The decision was also accompanied by a press conference by RBA Governor Phillip Lowe, where he emphasised that the decision by the RBA today, complements the government efforts to support the Australian economy and to lower unemployment.”

“Whilst most elements of the RBA’s decision had been priced in, there were some surprises on the dovish side, including the tight six-month window to purchase bonds and the 0% on exchange settlement balances. That said, the RBA has reinforced our view that it will hold off bringing the policy rate into negative territory (for now). If the need arises, more Quantitative Easing (QE) and yield curve control are likely to follow first.”