The Reserve Bank of Australia (RBA) decided to slash cash rate down to 0.25 per cent to prevent a recession due to the COVID-19 pandemic. The RBA believes the economy will recover after the virus is contained. Earlier this month, RBA cut the cash rate down to 0.50 per cent to support the economy. “The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than earlier expected,” RBA Governor Philip Lowe said. The RBA also came to the decision to buy Australian government bonds in the secondary market. This move will “address market dislocations” as the entire world race to contain the virus or find a vaccine. The RBA will also provide a three-year funding facility that will result in cheap loans for Australian banks. “ADIs (authorized deposit-taking institutions) will be able to obtain initial funding of up to 3 per cent of their existing outstanding credit” Lowe added. Finally, the board decided that exchange settlement balances at the RBA will be remunerated at 10 basis points rather than 0.
The RBA is hopeful that the Australian economy will recover after the coronavirus outbreak affecting the world. There are now extraordinary efforts to support incomes, businesses and jobs with the health of the population still top priority. RBA explained that their decision to cut the cash rate is not only to support the economy. But to also position it for recovery. “At some point, the virus will be contained and the Australian economy will recover. In the interim, a priority of the Reserve Bank is to support jobs, incomes and businesses, so that when the health crisis recedes, the country is well placed to recover strongly,” Lowe explained.
Record low interest rates and the construction industry are tipped to lead the recovery in the economy. Infrastructure spending has been abundant with billion-dollar projects moving forward. Strong price growth is forecast in Brisbane and Melbourne. Brisbane is set for a long-overdue boom according to experts. Melbourne is projected to record 8 per cent increase in house prices throughout 2020.
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