SYDNEY – The Australian central bank kept interest rates at record lows on Tuesday and said it would do “what it needed” to reach its target of 0.25% for three-year government bond yields because it expected an “enormous” economic contraction in the next quarter.
The Reserve Bank of Australia (RBA) announced on March 19 the cut in interest rates to 0.25% along with an unprecedented stimulus package, which included an unlimited bond purchase program.
On Tuesday, the council confirmed all elements of the package and said it would not raise interest rates until it made progress in achieving employment and inflation goals.
“There is considerable uncertainty about the short-term prospects for the Australian economy,” Governor Philip Lowe said in a brief statement after the meeting.
“Much will depend on the success of the virus prevention effort and how long social distance measures need to stay in place,” Lowe added.
“However, a very large economic contraction is expected to be recorded in the June quarter and the unemployment rate is expected to rise to the highest level in years.”
There is already growing evidence of a marked decline in activity when the total number of confirmed COVID-19 cases in Australia crept towards 6,000 with 46 deaths.
Restrictions on human movement and meetings have forced many businesses in the fields of hospitality, retail, transportation, education, and even community services to be closed. Businesses that remain open face a decline in sales and increasing operational constraints.
Indeed the numbers that came out at the beginning of the day were not pleasant.
The Australian Industry Group Australia’s Service Performance Index fell to 38.7 points in March, the lowest since March 2009 and the fourth month of contraction.
Separate figures from the Australian and New Zealand Banking Groups show Australia’s job advertisements have decreased the most in more than a decade in March.
Another survey from ANZ and Roy Morgan also out on Tuesday showed consumer sentiment bounced last week after two months of drastic fall, when the government’s “JobKeeper” plan to subsidize some workers eased a little mood.
The main survey index rose 10.1% from the previous week, but is still close to the lows seen in the recession of the early 1990s.
Economists worry that unemployment could surge towards 10% in the coming months because most of the economy is close to fighting the virus. The unemployment rate stood at 5.1% in February before rolling shutdowns left many jobless.
“Before the announcement of JobKeeper payments, we estimate that more than 1.1 million workers could lose their jobs and the unemployment rate could rise to a peak of 13%,” said ANZ senior economist Catherine Birch.
“However, we think that JobKeeper payments will get more workers employed and reduce the peak of unemployment – the economic version of the ‘smoothing curve’.”
Australia’s trade balance also narrowed the touch to A $ 4.36 billion ($ 2.67 billion) with tourism revenue down 15% in February to $ 1 billion in just two months, data from the Australian Bureau of Statistics (ABS) showed in Tuesday.
(This story corrects the central bank phrase in paragraph 1)
(Editing by Sam Holmes)
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