Victoria has put Australia’s economic recovery back ‘some months’: RBA
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The Reserve Bank of Australia (RBA) has left the official cash rate on hold at 0.25 per cent as it continues to wait and see how the economy is travelling.
While that would surprise nobody — and may not stop the banks from lifting theirs — the RBA also revealed one unexpected shift.
“The RBA made something of a surprise move, increasing the size of the term funding facility and making it available for longer,” Sarah Hunter, chief economist for BIS Oxford Economics, said.
“Local banks can now borrow up to an additional 2 per cent of their outstanding credit at a rate of 0.25 per cent for three years and access to the facility has been extended until June 2021.”
While that might sound like gobblygook to most Australia, it essentially means the RBA has substantially increased the funding available to the banking system to up to $200bn.
On top of that, the RBA board announced it had bought another $10bn worth of government securities as it watched how Australia’s economic recovery fared.
“Employment increased in June and July, although unemployment and underemployment remain high,” Governor Philip Lowe said in his monetary statement.
“The virus outbreak in Victoria and subdued growth in aggregate demand more broadly mean that it is likely to be some months before a meaningful recovery in the labour market is underway.”
Under the RBA’s “central scenario”, the unemployment rate is forecast to hit 10 per cent later this year before declining “gradually” to around 7 per cent by 2022.
It’s a long way north of the 4.5 per cent target that the central bank had spent years aiming at before the pandemic struck.
It casts a fair reflection of how the RBA’s priorities have shifted, from trying to push wages up to trying to contain the fallout of Australia’s first recession in 29 years.
Of course, that’ll also be shaped by how Australia’s trading partners fare.
“Globally, an uneven economic recovery is underway after a very severe contraction in the first half of 2020,” Lowe said.
“The future path of that recovery is highly dependent on containment of the virus. High or rising infection rates have seen a recent loss of growth momentum in some economies. By contrast, in China, economic growth has been relatively strong.”
While normally that would fare well for Australia, recent tensions between the two nations have been strained to say the least.
With the RBA unable or unwilling to cut further, and with the federal government getting ready to cut back cornerstone programs like JobKeeper and JobSeeker, there are choppy waters ahead still.