Fundamental Comment

RBA keeps interest rates at record low, predicts contraction

RBA keeps interest rates at record low, predicts contraction

The Reserve Bank of Australia (RBA) kept interest rates unchanged to remain at record lows on Tuesday, pledging to do what is needed to achieve the 0.25% of the government's three-year bond yields, in addition to forecasting a major economic contraction in the second quarter of this year.

The RBA decided to hold its benchmark interest rate at 0.25 percent, in a move broadly in line with analysts' expectations, where they also stressed that interest rates will not be raised until progress is made regarding making both employment and inflation hit targets.

The Reserve bank of Australia said in its monetary policy statement that Covid-19 remains a very large public health crisis in the first place, but has very strong impacts on economies and financial systems around the world.

The Bank believes that once the virus is contained, the global economy is expected to recover, which will be supported by large stimulus packages and strong monetary policy easing.

They also noted that it has injected significant liquidity into the financial system through its day-to-day operations on the open market in order to support credit and keep financing costs low in the economy.

The RBA had already taken concessional steps to support the economy from the fallout by cutting interest rates and launching a quantitative easing program.

For his part, RBA governor Philip Lowe said in a short statement that there is a great deal of uncertainty about the near-term future of the Australian economy.

"A very large economic contraction is expected in the June quarter and the unemployment rate is expected to rise to its highest level for many years," he added.

On economic front, data released Tuesday by the Australian Bureau of Statistics showed a rise in Australia's trade surplus in February, with the trade balance in excess of A$4.36 billion, exceeding market expectations with a surplus of just A$3.75 billion.

Regarding Covid-19 latest updates in Australia, the number of cases of Covid-19 virus has risen to more than 12,300, with more than 240 deaths.

As of 09:19 GMT, The Australian dollar rose 1.44 percent to $0.6175.

Australia's currency lost 6.3 percent in the first quarter of this year against the greenback amid strong volatility in global markets due to the rapid spread of the coronavirus.

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