RBA urges ongoing stimulus for economy

Australia’s central bank says the economy will need “considerable” support for some time, and it would be a “problem” if the government ended fiscal stimulus in September as initially flagged.

Australia’s fiscal response to the coronavirus pandemic is among the biggest in the world at almost 10 per cent of gross domestic product. 

It came after the central bank slashed interest rates to a record low 0.25 per cent and launched an unlimited quantitative easing program in March to help buffer the economy against the fallout of the global outbreak.

The emergency measures have so far been successful in supporting the country’s $2 trillion economy, though further support will be required, Reserve Bank of Australia Deputy Governor Guy Debelle said on Tuesday.

“If everything ceases at the end of September then yes that would be a problem,” he said, responding to a question following a speech.

“The government’s made it very clear in recent days that they are well aware of that and they are considering what they’re going to do to address that. We’ll find out more in a few weeks’ time.”

Federal Treasurer Josh Frydenberg is due to provide an update on July 23 on whether there will be changes to the fiscal package, in particular an extension of support beyond the current end-September due date.

With the economy in recession for the first time in 30 years, the government would have reason to keep stimulus going.

Official data on Tuesday showed payroll jobs were still 6.4 per cent below mid-March levels when Australia had recorded its 100th confirmed case of COVID-19.

The recovery in payroll jobs between mid-April and mid-June represents only around 30 per cent of the jobs initially lost to COVID-19, the Australian Bureau of Statistics (ABS) said.

Another worry is that an uptick in cases in Victoria could hurt the economy in Australia’s second biggest state, with separate data showing a drop in card spending in the state.

“There is considerable uncertainty over the path from here,” Mr Debelle said.

“This uncertainty includes the behavioural responses as health restrictions are eased. There is also considerable uncertainty about the future, which will affect the decisions of businesses and households.”

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