James Morley

The RBA has moved the policy rate to its stated effective lower bound of 0.25% and also engaged in yield curve control to bring the 3-year government bond rate to around 0.25%. This is a welcome development given the clear enormity of the global economic crisis caused by the COVID-19 outbreak and the various measures implemented to mitigate the pandemic. The RBA will not change the policy rate at the April meeting and I would not recommend it do so. The policy rate could, in principle, be lowered further. But the stimulative effects of a further decrease in the policy rate even closer to zero or possibly to a negative value would be small compared with the effects of more unconventional policies such as the yield curve control. The main task for the RBA Board now is to explicitly confirm that the choice of a 3-year bond rate for yield curve control signals a strong expectation of keeping the overnight policy rate at 0.25% for at least 3 years and to explain what would be the conditions under which the yield curve control would be lifted (presumably an indication that the economic contraction due the COVID-19 crisis is easing) and subsequently when the overnight rate would be lifted (again, I would strongly suggest tying this to being at least 3 years from now and when a set of long-term inflation expectations measures return to the middle or top end of the 2-3% target range).

Outcome date: 
Monday 06 April 2020
Current rate: 
12 months: 
6 months: 

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