The RBA’s progress report on the Australian economy
Head of Investment Strategy and Economics and Chief Economist, AMP Sydney, Australia
At the Reserve Bank of Australia’s (RBA’s) meeting this week, there were no great surprises.
The central bank left the cash rate on hold at 0.25% for the fourth month in a row, and no change is expected there at the moment. I don’t see the RBA moving into negative territory with rates, as there is no substantial evidence that approach would be effective.
The RBA indicated it is prepared to do whatever it can to support the economy. I think they could do more quantitative easing, which means pumping more money into the economy, bringing the value of the Aussie dollar down, and bringing the longer-term cost of borrowing down even lower.
For now, it looks like the focus is on fiscal policy for future support for the Australian economy. This particularly applies to existing programs like JobKeeper, and whether it is extended beyond the end of September.
The RBA didn’t make any specific mention of the situation in Victoria, which in recent days has continued to worsen. This has, as we know, resulted in a lockdown of metropolitan Melbourne for six weeks. This will no doubt have an impact on the Victorian economy, which is a significant contributor to Australia’s GDP.
More broadly though, the RBA indicated a little more confidence that the economy has bottomed out. However, it is uncertain about the speed of the recovery, and made it clear that recovery remains dependent on the control of COVID-19.
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Important notes
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