Australia’s central bank believes the economy has done better than feared during the coronavirus crisis but the hit to growth will have a “long-lived impact” requiring policy support for years to come.
“There is considerable uncertainty over the path from here,” Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle said in a speech on Tuesday.
“This uncertainty includes the behavioural responses as health restrictions are eased. There is also considerable uncertainty about the future, which will affect the decisions of businesses and households.”
The RBA will maintain the current policies to keep borrowing costs low and credit available, and is ready to do more as the circumstances warrant, he added.
The central bank slashed its cash rate to a record low 0.25 per cent in mid-March as entire sectors of the economy were shut down to curb the spread of COVID-19.
It has reiterated that the cash rate target will not be raised until it achieves the inflation and employment goals.
“Given the outlook for inflation and the labour market, this is likely to be some years away,” Mr Debelle said.
He said the Australian economy had performed somewhat better in the June quarter than feared, although the declines in both gross domestic product (GDP) and hours worked were historically large.
Mr Debelle invoked former chief economist of the International Monetary Fund, Olivier Blanchard, while noting the importance of fiscal stimulus in supporting the economy.
“There are no concerns at all about fiscal sustainability from increased debt issuance,” he said.
“This is because growth in the economy will work to lower government debt as a share of nominal GDP.”