The Reserve Bank expects the peak in the unemployment rate will likely be lower than the eight per cent previously estimated.
In the minutes of the central bank’s board December 1 board meeting, it said employment was recovering strongly and the economic recovery was on the way with recent data generally better than expected.
“Nevertheless, the recovery was still expected to be uneven and protracted, and it remained dependent on significant policy support and favourable health outcomes,” the minutes released on Tuesday said.
The Reserve Bank left its suite of policy measures unchanged at that meeting after cutting the cash rate, and other key rates, to a record low 0.1 per cent the previous month.
The bank also entered into a $100 billion bond buying program.
The board reiterated its commitment to not increasing the cash rate until actual inflation is sustainably within the two to three per cent target range.
“Given the outlook, the board does not expect to increase the cash rate for at least three years,” the minutes said.
They say the size of its bond purchase program, aimed at keeping market interest rates, and in turn funding costs, low will be kept under review.
“The board is prepared to do more if necessary,” the minutes said.
Meanwhile, the Reserve Bank’s head of financial stability Jonathan Kearns, has told a conference that while Australia’s banks have performed well during the pandemic, it doesn’t mean the risks facing them have passed.
“We’ve had the largest contraction in global output since the Great Depression,” Mr Kearns told the University of NSW’s Australasian Finance and Banking Conference.
“And as that impairs some households’ and businesses’ ability to repay their loans, the liquidity phase of the crisis is giving way to a solvency phase.”
Even so, he says Australian banks are better prepared than they were prior to the 2008-2009 global financial crisis.
Mr Kearns says banks are well capitalised with very large buffers that will enable them to continue lending and supporting their customers, and in term will aid the economic recovery.
Internationally, there has been a lot of focus on the impact of very low interest rates on banks’ profits given some economies have had very low rates since the GFC.
“If interest rates were not cut to exceptionally low levels, then output would have been even weaker, loan portfolios even more stressed and banks would have incurred larger credit losses,” he said.
Even though the Reserve Bank’s record low cash rate will not increase for some time, Australian interest rates did not reach the very low levels they got to in other economies in the GFC.
“And they have been higher than in most advanced economies since then,” Mr Kearns said.
“So very low interest rates haven’t been a constraint for Australian banks’ profits to the extent they have been in other countries.”