RBA: Low rates could last for three years

Reserve Bank of Australia governor Philip Lowe has said the central bank is trying to “build a bridge to recovery” for the Australian economy but low rates could last for an extended period of time and job losses could be “significant”.

Rates were cut from 0.5% to 0.25% today, a historic low for the RBA, and the same rate as the Bank of England, Federal Reserve and Reserve Bank of New Zealand.

In a rare speech following the cut, Lowe said: “The Reserve Bank board did not take these decisions lightly. But in the context of extraordinary times and consistent with our broad mandate to promote the economic welfare of the people of Australia, we are seeking to play our full role in building that bridge to the time when the recovery takes place.”

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He had previously said 0.25% was the effective lower bound and he reiterated this would be the lowest the RBA would go, saying the bank had "done it all can" with the cash rate. Instead, the focus would now be on alternative stimulus packages.

He said this 0.25% rate was likely to last for an “extended period of time” and progress towards full employment and the inflation target would be “very gradual”. This extended period could be as long as three years.

As to when the rate would change, he said the RBA would want the coronavirus to be contained, the market to be in a recovery phase and progress being made towards full employment and the inflation target.

“We are expecting a major hit to economic activity and income in Australia that will last for a number of months. We are also expecting significant job losses. The scale of these losses will depend on the ability of businesses to keep workers on during this difficult period,” he said.

“It is also important to repeat that we are expecting a recovery once the virus is contained. The timing and strength of that recovery will depend in part upon how successful we are, as a nation, in building that bridge to the other side. When that recovery does come, it will be supported by the low level of interest rates.”

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