At its August 2020 meeting, the Reserve Bank of Australia announced the cash rate target would be held at 0.25%. 

The record low cash rate target setting, which has been described by the RBA as the ‘effective lower bound’, remains a key feature of the monetary policy deployed in response to COVID-19. 

Other monetary measures include the provision of a term funding facility for banks to maintain liquidity, and the purchase of government bonds in the secondary market to reduce the cost of government debt, and put cash back into the hands of investors. 
The RBA has noted that while the cash rate target remains at 0.25%, the actual cash rate has fallen below the target, and has been hovering around 13 to 14 basis points since late April. 

For banking, finance and housing, the effect of this three-pronged approach has seen some obvious benefit. As the cash rate reduction flows through to mortgage rate discounts, mortgage holders are lowering their housing costs through refinancing. ABS data suggests the total value of externally refinanced loans increased 25.1% in May. Since March, almost $40 billion in home loans has been externally refinanced.

Additionally, the average variable lending rate for new owner-occupier mortgages fell to just 2.93% over May, which is down 33 basis points since the start of the year. Record low mortgage rates should support some purchasing decisions, especially when combined with initiatives such as the HomeBuilder scheme, the first home owner grant, and various other demand-side stimulus from state and territory governments. 

However, there are still plenty of headwinds which will test the ongoing effectiveness of current monetary policy. With inflation sitting at -0.3% in the year to June, the unemployment rate rising to 7.4%, and a renewed round of restrictions across Victoria, a greater emphasis should be placed on fiscal measures to support an economic environment that is accommodative to growth.  Considering the cash rate isn’t likely to be reduced below its current setting, fiscal policies will be key to supporting economic activity through the pandemic.