The Reserve Bank has warned that the Australian economy faces a “very large economic contraction” in the current June quarter.
In his post-meeting statement yesterday, RBA Governor Philip Lowe said the as well as the slump, unemployment “is expected to increase to its highest level for many years.”
He did not estimate the size of the contraction but we saw yesterday that it will be substantial with a survey from the Australian Bureau of Statistics showing that 66% of Australian companies have seen turnover of revenue reduced by the impact of the COVID-19 pandemic.
At the same time, ABS trade data showed imports falling to a 22 month low in February and exports hitting a 17 month low.
The ANZ job ads survey for March showed a 10% plus slide in month to month job ads, or more than 15,000.
This was on top of the near 18% drop in car sales in March.
The RBA board meeting left the cash rate steady at 0.25% for what is expected to be at least three years of no changes.
“The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 percent target band,” Dr. Lowe said in his statement.
He pointed out that the yield on 3-year Australian Government bonds is now around the target level set by the Board last month of 0.25%, while the functioning of the government bond markets “ as improved.”
The RBA Board, Dr. Lowe said was “committed to doing what it can to support jobs, incomes and businesses as Australia deals with the coronavirus.”
“The Australian financial system is resilient. It is well capitalised and in a strong liquidity position, with these financial buffers available to be drawn down if required to support the economy,” Dr. Lowe said.
“Much will depend on the success of the efforts to contain the virus and how long the social distancing measures need to remain in place.
“The coordinated monetary and fiscal response, together with complementary measures taken by Australia’s banks, will soften the expected contraction and help ensure that the economy is well placed to recover once the health crisis has passed and restrictions are removed.
“These various responses are providing considerable support to Australian households and businesses through what is a very difficult period,” Dr. Lowe said.