Question

The Reserve Bank of Australia reduced the cash rate twice in March 2020, to 0.25 per cent. Explain the rationale for reducing the cash rate

Answer 1

Reasons for reduction in cash rate by the Reserve Bank of Australia :
1. This is a monetary regulation policy by Australia's central bank to influence the price of borrowing money and provides the Reserve Bank of Australia with a means of regulating the level of economic activity and inflation during the Covid-19 pandemic
2. This has been done because market activities involved fear of impact from the Coronavirus pandemic. Hence, to counter for the speculation, this was the measure taken.
3. Lockdowns had affected domestic consumption spending, hence the rate of borrowing had to be brought down.
4. To counter the depreciation of the Australian Dollar and whatever value it had lost value over the past few months.