CANBERRA, AAP – Philip Lowe appeared surprisingly optimistic following this week’s Reserve Bank monthly board meeting despite being faced with a marked and sudden deterioration in the economy as a series of lockdowns take their toll.
The RBA governor conceded the economy will likely contract in the September quarter, interrupting the strong recovery from last year’s recession.
“The experience to date has been that once virus outbreaks are contained, the economy bounces back quickly,” Dr Lowe said.
Dr Lowe and his leadership team will be quizzed by the House of Representatives economic committee on Friday on the economic outlook and the RBA’s monetary policy actions.
“The committee will be scrutinising the RBA’s measures in response to the COVID-19 pandemic, particularly the move to implement quantitative easing, and how these measures will help the Australian economy recover,” committee chair and Liberal MP Tim Wilson said.
The committee will also be scrutinising the RBA’s response to the recent COVID-19 outbreaks and lockdowns in Australia’s cities.
At the July RBA board meeting, the outlook had then appeared so rosy that the central bank had signalled it would start winding back its bond buying program, or quantitative easing, from $5 billion per week to $4 billion from September.
Economists had expected this week’s board meeting would at least delay this so-called tapering until the shock of multiple lockdowns had passed, particularly as the Greater Sydney shutdown is now dragging on until at least the end of August.
Instead, the RBA made no changes to its bond buying plan that aims to keep market interest rates and borrowing costs low. It also kept the cash rate at 0.1 per cent, already at a record low.
“The rationale is that the experience points to the economy bouncing back quickly and that presumably a policy change may have undermined confidence in that outlook,” Westpac chief economist Bill Evans said.
During the six-monthly grilling by politicians, the RBA will also release its quarterly statement on monetary policy, which contains the central bank’s latest economic forecasts.
In his post-August board meeting statement, Dr Lowe indicated that while the unemployment rate is expected to increase in the near term, it is expected to resume trending lower next year to 4.25 per cent, slightly lower than previously expected.
The jobless rate fell to a decade low of 4.9 per cent in June.