RBA Says Fiscal-Monetary Support Likely to Be Need for Some Time

(Bloomberg) -- Australia’s economy is likely to need policy support for some time despite improving signs, the central bank board said at its June meeting when it left the benchmark interest rate and bond yield target at 0.25%.

“It was possible that the downturn would be shallower than earlier expected,” the Reserve Bank of Australia said in the minutes released Tuesday in Sydney. “The rate of new infections had declined significantly and some restrictions had been eased earlier than had previously been thought likely. However, the outlook remained highly uncertain.”

The board signaled that it was pleased with the way its policy support package was working, noting it had helped lower funding costs and stabilize financial conditions, and was supporting the economy. This contrasts with other central banks, such as the Federal Reserve and Bank of England, where colleagues are rummaging through their toolkits for additional support measures.

The RBA has refrained from buying government securities since early May as markets have calmed and the three-year yield has held around target. It scooped up more than A$50 billion ($34.7 billion) of bonds between March 20 and May 6, after reducing the cash rate to its effective lower bound of 0.25% and announcing a A$90 billion lending facility at an emergency meeting.

The central bank’s board discussed the recent movements in financial markets.

“Members discussed the sharp recovery in the prices of risky assets since their lows earlier in the year and whether this was warranted given the large decline in global economic activity and the highly uncertain outlook,” it said.

The RBA said that while there had been significant job losses, “timelier payroll data suggested that the pace of job losses had slowed towards the end of April.”

Data released at the same time as the minutes Tuesday showed payroll jobs increased 0.4% in week ending May 30. That suggests a slight improvement, with total payrolls jobs increasing 1% through May.

In contrast, economists expect Australia probably shed 75,000 jobs in May and unemployment rate climbed to 6.9% from 6.2% in April in estimates ahead of data due Thursday.

“Economic activity in Australia had contracted very significantly in late March and April, but more recent data had suggested that it had begun to recover over the course of May,” the board said in the minutes.

©2020 Bloomberg L.P.