RBA signals policy change if needed

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Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

 

The Reserve Bank board has not ruled out providing more support during the COVID-19 pandemic should the economy need it.

But economists at this stage doubt the central bank will cut its key interest rate any further, already at a record low.

The bank’s cash rate of 0.25 per cent has been in place since March, as has its bond buying program, which aims to provide liquidity to the financial system while keeping a lid on market interest rates.

Minutes from the Reserve Bank’s August 4 board meeting released on Tuesday reaffirmed there was no immediate need to adjust the package.

“Members agreed, however, to continue to assess the evolving situation in Australia and did not rule out adjusting the current package if circumstances warranted,” the minutes said.

“Board members … considered it likely that fiscal and monetary support would be required for some time given the outlook for the economy and the labour market.”

National Australia Bank economist Kaixin Owyong expects the Reserve Bank will keep monetary policy on hold, unless its forecasts disappoint in the medium term.

“We expect the RBA to keep accommodative policy in place for the foreseeable future, given unemployment will remain high and inflation will remain below target to the end of 2022,” she said.

Addressing federal politicians last week, Reserve Bank governor Philip Lowe would not rule out a policy of negative interest rates but said it was “extraordinary unlikely”.

The minutes came as a new report showed consumers are in a better mood after the recent decline in coronavirus infections rates and the return to work of thousands of Australians.

The weekly ANZ-Roy Morgan consumer confidence index gained 2.4 per cent, ending seven weeks of declines.

“Confidence strengthened last week as the rate of growth in COVID-19 cases declined in Melbourne and Sydney,” ANZ head of Australian economics David Plank said.

He said data last week showing another 114,700 people had secured a job in July may have also helped to buck the seven-week continuous decline in the index.

However, that jobs report also showed the number of people unemployed rising above one million for the first time and the jobless rate hitting 7.5 per cent.

Under the Reserve Bank’s baseline case, it expects unemployment to reach 10 per cent by the end of the year.

Mr Plank said consumers were still very cautious about the outlook.

“With confidence remaining at a level that is well below average, we aren’t getting too carried away by the positive result,” he said.

A separate survey showed Victorian businesses were already pretty pessimistic heading into the harsh stage four lockdown, with more than half predicting a decrease in profitability over the next three months.

The August Sensis Business Index survey, conducted just as Melbourne went into lockdown, showed 54 per cent expecting profitability to decrease.

That compares with Sydney, where only about a quarter expect a decline in profits and almost one in three expect to make a profit.

Sensis chief executive John Allan said the survey showed just how hard some industries had been affected.

“There are some sectors that were less affected but the hospitality and accommodation sectors were virtually shut overnight,” Mr Allan said.

“And that continues to be the case in Victoria.”

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