The RBA reports that COVID-19 is having a more dramatic effect on the Australian economy than did the GFC. In Australia, the rate of unemployment is high at 7 per cent, but has been materially contained by the JobKeeper package that has helped to maintain the employment relationship between workers and businesses. This will help considerably in the recovery.
Australia’s monetary response to the virus was summarised as follows:
1) A reduction in the cash target to 25 points
2) A target for the yield on three-year government bonds of around 25 basis points
3) Expanded daily market operations to provide increased market liquidity
4) A Term Funding Facility (TFF) for the banking system to provide three-year funding at a rate of 25 basis points. This was complemented by the Australian Office of Financial Management's (AOFM's) program to support non-bank lenders.
5) Setting the rate paid on Exchange Settlement (ES) balances at the RBA at 10 basis points.
However, while the cash rate target has remained at 25 basis points, the actual cash rate traded in the market has declined to around 13–14 basis points currently. This decline in the cash rate was expected and is consistent with the aim of reducing funding costs in the Australian economy. It reflects the large amount of Exchange Settlement balances in the system. The market expectation is that the cash rate will remain around its current level of 13–14 basis points for at least the next year.
The RBA also says that outcomes in the Australian economy have been better than earlier feared.