RBA Standby For Additional Policy Changes

RBA Standby For Additional
Policy Changes 

On August 4, the Reserve Bank of Australia (RBA)
released its meeting minutes stating that they would not make any immediate
adjustments while monitoring the country’s situation under the impact of the
Covid-19. However, members did agree that they are more than ready to adjust
their policy tools should their economy needs it.

Since the outbreak of the pandemic in March, the RBA
did not hesitate to slash its overnight cash rate to a historical low of 0.25%.
The bank also expanded its bond buying program to ensure sufficient liquidity
in the financial system while putting a ceiling on market interest rates. The
bank expects fiscal and monetary support to remain enacted, given the uncertain
outlook towards Australia’s economy and its labor market.

Another side note was that the RBA governor Philip
Lowe said that negative interest rate policy is not impossible, but it is still
extraordinarily unlikely. Most central banks worldwide are looking into
negative interest rates as an additional policy tool; however, most find that
adopting negative rates is that effective when considering its complexity and
the impact towards other financial institutes. As of writing, only three
central banks have adopted negative rates: European Central Bank (ECB), Bank of
Japan (BOJ), and Swiss National Bank (SNB).

Following the country’s recent decline in the Covid-19
infection rates, consumers regain their confidence as thousands of Australians
get their jobs back. The ANZ-Roy Morgan consumer confidence index increased to
2.4%, snapping its 7-weeks declining streak. Furthermore, economic data last
week showed that 114,700 individuals secured a job in July, with the
unemployment rate rising by only 0.1% to 7.5%, beating economists’ forecast to
rise to 7.8%. Under the RBA’s outlook, they expect the unemployment rate to hit
10%, a level that was last seen two decades ago.

However, the recent surge in new infections
especially, in Victoria, the epicenter of the latest outbreak kept consumers
pessimism in place while heightening expectations of further policy measures to
be taken by the RBA and the government.