Global Economy – as countries around the world try to harness the coronavirus pandemic, global economies are experiencing a harsh downturn and a massive rise in the number of unemployed. Thankfully during May the number of new virus outbreaks have dropped considerably in some countries and activity restrictions have eased. If low infection rates can be maintained, a global economic recovery will begin but only with the continued support of both the huge fiscal packages and the major easing in monetary policies. Read more below in The Reserve Bank economic update.
Australian Government Bonds – the yield on 3-year Australian Government Securities (AGS) is around 25 basis points. The Reserve Bank have purchased to date a total of around $50 billion. It is prepared to increase its bond purchases and will do whatever is necessary to ensure bond markets remain functional and to achieve the yield target for 3-year AGS. The target will remain in place until progress is being made towards the goals for full employment and inflation.
Interest Rates – the cash rate remains at 25 basis points.
Aussie Dollar – has risen strongly.
Australian Economy – is experiencing the biggest economic contraction since the 1930’s! An extremely difficult time. In April, work hours declined by an unprecedented 9% and more than 600,000 people lost their jobs. Household spending dropped significantly. In May, however, there were signs of a pick up in household spending and hours worked. The outlook remains very uncertain and it may take a long time to fully recover.
Australian Financial Markets – despite all of the above, the stock market has risen quickly since the end of March.
How do the Reserve Bank come to their decisions on Interest Rates?
The Board of the RBA considered the outlook for the global economy, bond yields, the Australian economy, the Australian labour market, housing market & inflation.
Philip Lowe, Governor of The Reserve Bank, explains everything here in his economic update
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