Australian central bank leaves rates unchanged

Reserve Bank of Australia signals easing in the future


Australia’s central bank held rates at their record low on Tuesday but signalled that further monetary easing could well be on the horizon as the job market struggles to recover from the Covid-19 crisis.

As expected, the Reserve Bank of Australia maintained both its official cash rate and its three-year government bond yield target at 0.25 per cent.

With just over 27,000 total cases recorded and only 895 deaths attributed to the novel coronavirus, Australia has fared far better in medical terms than many developed nations. It has not escaped the economic devastation of the pandemic and the reaction of governments to it, however.

The antipodean country suffered its worst economic contraction since the Great Depression in the last quarter, shrinking by 7 per cent.

Striking a positive tone, RBA Governor Philip Lowe observed: “As difficult as this was, the decline in output was smaller than in most other countries and smaller than was earlier expected.”

Lowe nonetheless conceded that the national recovery from the crisis “is likely to be bumpy and uneven”, admitting “it will be some time before the level of output returns to its end-2019 level.”

Hinting at the central bank’s preparedness to try to facilitate this recovery, the governor stated: The board continues to consider how additional monetary easing could support jobs as the economy opens up further.”

Shortly after the RBA described Australia’s public sector balance sheets as being “in good shape”, Australian treasurer Josh Frydenberg introduced his budget.

The A$98bn ($70bn, £54bn) worth of spending and business concessions outlined by the 49-year old Liberal MP will see the nation’s deficit widen to A$213.7bn this year. Australia’s net debt is also expected to rise to a record high of $966bn, or 44 per cent of GDP by June 2024.

The S&P/ASX 200 closed up 0.35 per cent on Monday, at 5,962.10. Although it has recovered from its March lows, the nation’s leading index still stands 10.9 per cent below its 2020 starting level.

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