Reserve Bank deputy governor Guy Debelle says the policy actions taken this year have materially lowered the borrowing costs for households, business and governments.
Dr Debelle says the central bank’s stimulus measures, complementing the significant packages introduced by governments, have boosted the cashflow of households and business, offsetting the impact of lower saving rates.
“This directly supports spending in the economy, as does the lower exchange rate,” Dr Debelle told an Australian Business Economists webinar on Tuesday.
“The lower borrowing rates will encourage businesses and households to borrow, invest and spend when they are confident about their future prospects.”
He said while the news about vaccines should help bolster that confidence, it is likely to be some time before the vaccines will be widely available and distributed.
But he said the boost to spending in the economy will increase jobs and, in time, reduce unemployment.
“A materially lower unemployment rate is clearly desirable in itself, but will also be necessary before we will see sustainably higher wages growth and inflation,” he said.
Reflecting on the global financial crisis 12 years ago, he warned against removing stimulus too early.
“A number of European countries learned this lesson to their cost after the global financial crisis,” he said.
Commenting on the RBA’s decision to launch an $100 billion bond buying program, he said longer-term Australian government bond yields were higher than those in other advanced countries.
This was contributing to a higher exchange rate.
However, between mid-September and November, when the bond buying program was announced, there were increased market expectations of such a move alongside cuts to the cash rate and other key rates.
“Between then and early November, the exchange rate depreciated by around five per cent against the US dollar,” Dr Debelle said.
“It is reasonable to attribute the bulk of this depreciation to the growing expectation of the package announced in November.”
Meanwhile, the short, sharp impact of South Australia’s coronavirus lockdown was enough to sour the mood of the nation.
The ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – fell two per cent in the past week.
It ends a record breaking run of 11 consecutive weekly gains that took the index to its highest level since February.
“With South Australia reopening earlier than expected and restrictions in Victoria and NSW relaxed, the impact on sentiment may be short-lived,” ANZ economist David Plank said.
The index remains above the 100-point level despite the latest setback, suggesting optimists continue to outweigh pessimists.