Aussie central bank boss flags further interest rate cut to combat "uneven" recession
Source: Xinhua | 2020-10-16
Reserve Bank of Australia (RBA) Governor Philip Lowe has flagged further monetary policy easing to help the country find its way out of what he described as an "uneven" recession.
Speaking at a function on Thursday, Lowe flagged a further reduction in the official interest rate, which many observers expect to move to 0.1 percent from 0.25 percent next month, to help put downward pressure on the currency and support jobs.
"When the pandemic was at its worst and there were severe restrictions on activity, we judged that there was little to be gained from further monetary easing," Lowe said.
Lowe said that while Australia's economic recovery from the COVID-19 pandemic was underway, it still remained uncertain and largely dependent on the degree to which the virus is successfully suppressed.
In terms of the RBA's response to COVID-19, Lowe said the purchasing of government bonds and providing of low-cost funding to approved financial institutions had helped maintain liquidity and ease the burden of the pandemic for many people.
Lowe noted that the pandemic had hit the economy unevenly, affecting certain sectors more than others and disproportionately forcing young people out of jobs.
He said with Australia sealing its domestic borders, the pandemic had spread unevenly across different jurisdictions, therefore having varying economic impacts -- for instance in the state of Victoria which experienced a prolonged lockdown in order to contain a second wave of the virus.
Lowe said the targeting of fiscal support to those who need it most would help determine the strength of Australia's recovery, and that government spending would continue to play a key role in softening the recession.
"In previous downturns, it was monetary policy that played the leading role, but this time it has been the fiscal policy that has taken the lead," Lowe said. "This switch is entirely appropriate given the pandemic and the low interest rate world that we are living in."
In relation to government debt, which is the largest since World War II, Lowe said the current levels of government borrowing were not only sustainable but necessary given the nature of the crisis, adding that it remained lower than in many other countries.
"For a country that became used to low budget deficits and low levels of public debt, this is quite a change," Lowe said. "But it is a change that is entirely manageable and affordable and it is the right thing to do in the national interest."
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