Reserve Bank officials have left the cash rate unchanged at a record low 0.25 per cent, allowing Treasurer Josh Frydenberg’s federal budget to have the economic limelight.
The same rate remains for the yield target on three-year government bonds, and there is no change to the lending facility open to banks and other institutions.
The decision follows the central bank’s monthly meeting.
Reserve Bank Governor Philip Lowe said economic recovery from the coronavirus pandemic was under way in most parts of Australia, although this would be bumpy and uneven.
Mr Lowe said the high unemployment rate (7.5 per cent) was an important priority.
He noted the federal budget was due on Tuesday night, and said fiscal and monetary support would be required for some time given the economic outlook and prospect of high unemployment.
Some economists had suggested the RBA would cut the rate ahead of the much-anticipated budget, to provide a united effort at helping the economy overcome the coronavirus recession.
Mr Lowe said the board was considering how more monetary easing could help support jobs. However economists were divided on the form it might take.
AMP Capital chief economist Shane Oliver believed the RBA would cut the cash rate, three-year bond yield target and term funding facility rate to 0.1 per cent at the November meeting.
The bank is due to soon update its economic forecasts, and Mr Oliver said these would likely show its employment and inflation targets are not going to be achieved over the next two years.
However Commonwealth Bank chief economist Craig James said more monetary easing may not mean rate cuts, but bond purchases.
Mr Lowe said the bank’s policies were working as expected and helping lower borrowing costs and the supply of credit.
The lending facility, introduced in March, has provided $81 billion to banks and other institutions. Another $120 billion is available.
Government bond markets were functioning well, Mr Lowe said.
In early September the bank bought another $2 billion in government securities to try and achieve its target. It’s bought $63 billion worth since March. Three-year yields were at about 18 basis points in recent weeks.
Mr Lowe reiterated a previous commitment that the bank would not raise the cash rate until progress was made towards full employment and the board was confident inflation would be between two and three per cent.
The economy recorded deflation of 1.9 per cent for the June quarter.
The RBA has not changed the cash rate since March, when it used quantitative easing measures as the coronavirus pandemic took hold in Australia.