PHOTO: Reserve Bank
What has the RBA announced?
At an emergency board meeting on Thursday the Reserve Bank cut the official interest rate to 0.25 per cent, which is the lowest level the cash rate can go. The cash rate cut was just one part of a “comprehensive package to support the Australian economy through this challenging period”.
The RBA also announced it is implementing “yield curve control” and “forward guidance” to provide further stimulus to the economy. The RBA will target a three-year bond rate of 0.25 per cent (yield curve control) and “will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band” (forward guidance).
The RBA will also set up a funding facility for the banking system, with a focus on credit supply to small and medium-sized businesses and increase the interest rate on banks’ deposits held with the RBA
These measures will take effect immediately.
What is yield curve control and what’s the aim?
In normal times the RBA adjusts the cash rate in response to changing economic conditions. But after Thursday’s cut the cash rate is now as low as it can go, so to provide further stimulus the RBA has turned to the “unconventional” policy of yield curve control.
So what is yield curve control?
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