CANBERRA, AAP – The Reserve Bank of Australia will have the opportunity to provide an update on its latest thinking on the economic outlook when one of its top officials addresses an online conference.
RBA assistant governor for financial markets Christopher Kent will speak at the FX Markets 2021 conference on Friday.
The minutes of the RBA’s August 3 board meeting released this week were reasonably upbeat about an economic rebound after a predicted contraction in the economy in the September quarter due to a spate of virus lockdowns.
However, the landscape has changed markedly since that meeting, with NSW now in a statewide lockdown, Melbourne suffering yet another multi-week shutdown and the ACT also under restrictions until September 2
Just after the August board meeting, RBA governor Philip Lowe told federal politicians an economic contraction of around one per cent could be expected in the September quarter.
Treasurer Josh Frydenberg now expects that contraction could be two per cent-plus.
However, the treasurer told reporters it was too early to speculate on what might happen in the December quarter.
A technical recession is classified as two consecutive quarters of economic contraction.
Mr Frydenberg was talking after the latest job figures showed the unemployment rate unexpectedly fell to 4.6 per cent in July from 4.9 per cent, its lowest level since December 2008.
However, he warned the labour market would likely deteriorate from here due to a hit from lockdowns in NSW and Victoria , the nation’s two most populous states.
Economists and financial markets were surprised the central bank at the August meeting was sticking with its plan to reduce the amount of bond purchases it makes each week from early September in the face of the renewed downturn.
This program, known as quantatitive easing, aims to keep market interest rates and borrowing costs low by buying Commonwealth and state government bonds on the open market.
At its July meeting, the RBA board agreed to reduce, or so-called taper, the amount of bonds it purchases to $4 billion to $5 billion each week with the economy proving much stronger than expected at the time.
However, economists did latch on to a line in the August minutes that the “board would be prepared to act in response to further bad news on the health front should that lead to a more significant setback for the economic recovery”.
The RBA remains adamant that a hike in the cash rate is unlikely before 2024.