RBA In Wait And Watch Mode Amid “Highly Uncertain” Recovery

By Glenn Dyer | More Articles by Glenn Dyer

Most of Melbourne was put into a six-week lockdown yesterday, a move that will cripple the recovery in the economy and maintain the recession probably to the end of the year.

The news came less than an hour after the Reserve Bank kept its cash rate steady at 0.25% and gave no sign whatsoever that would be changing anytime soon.

Following its monthly monetary policy meeting on Tuesday, the bank’s board held rates at the record low level where they have been since late March when much of the economy was lockdown to stop the spread of the coronavirus.

While the lockdowns continue to be eased in most states, they were tightened dramatically in Victoria where 191 new cases – a record for a day – were reported yesterday.

Melburnians will only be allowed to leave their homes for four reasons — grocery shopping, caregiving, daily exercise, and school or work — Premier Daniel Andrews announced on Tuesday afternoon.

The stage-three restrictions will come into effect at 11.59 pm tonight and be in place for the next six weeks.

The worsening in Victorian infection numbers was not referenced directly by the RBA in the past meeting statement from the governor, Philip Lowe.

But it did remove a reference to the rate of new infections having declined significantly and it noted that uncertainty about the virus and the economy is making people cautious which is affecting spending plans.

The surge in case numbers – now averaging 100 a day in the past five days – has seen NSW close the border with Victoria and curtail all movements in and out of the state.

Figures showed that 44% of Monday’s cases were found in local government areas with no locked down postcodes.
Infections have now spread across the NSW-Victoria border and a tenth public housing tower has been exposed in Melbourne after a record spike in cases yesterday.

Media reports say an infected resident, who lives in a locked-down North Melbourne tower, also worked in the apartment building in Richmond as a subcontractor for the Victorian Department of Health and Human Services.
Albury-Wodonga, cities that sit on the Murray River on the NSW-Victoria border, has recorded three new cases of COVID-19. The infections came within hours of state and federal governments announcing plans to close the border.

In the post-meeting statement yesterday, RBA governor Philip Lowe said the country was going through a “very difficult period” and experiencing its largest economic contraction since the 1930s.

He said it appeared conditions had stabilised with the downturn less severe than initially feared.

“While total hours worked in Australia continued to decline in May, the decline was considerably smaller than in April and less than previously thought likely,” he said.

“There has also been a pick-up in retail spending in response to the decline in infections and the easing of restrictions in most of the country.”

Despite the improvement, Dr. Lowe said the nature and speed of the economic recovery were “highly uncertain”.

“Uncertainty about the health situation and the future strength of the economy is making many households and businesses cautious, and this is affecting consumption and investment plans,” he said.

“The pandemic is also prompting many firms to reconsider their business models. As some businesses rehire workers as demand returns, others are restructuring their operations.”

The Australian Industry Group’s performance of services index, also released on Tuesday, showed the largest part of the Australian economy still under pressure.

The index dropped 0.1 points in June to deep recession-like reading of 31.5 points, the second-lowest reading on record. A reading above 50 shows the service sector (which accounts for more than 60% of the Australian economy) to be growing. A reading as low as that reported yesterday indicates a deep recession.

The weak reading was ignored by the stock market as economists said it hinted at a slowing in the rate of growth in jobs and possibly a fall in employment.

But the news from Victoria yesterday afternoon caught the attention of investors and the ASX 200 fell 1% in 45 minutes to end the day down 1.7 points with the futures market pointing to losses overnight.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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