RBA keeps rates on hold

Interest rates will remain at record-low levels until any economic recovery takes hold, but the Reserve Bank of Australia says the depth of the economic downturn may be less than previously expected.

RBA governor Philip Lowe today announced the official cash rate would remain at 0.25 per cent, a level he said was appropriate during the Australian economy’s largest construction since the 1930s.

Dr Lowe said the total amount of hours worked by Australians in April was down an unprecedented 9 per cent, with more than 600,000 people losing their jobs and many others having been stood down.

“Household spending weakened very considerably and investment plans are being deferred or cancelled,” Dr Lowe said.

“Notwithstanding these developments, it is possible that the depth of the downturn will be less than earlier expected. 

“The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely. 

“And there are signs that hours worked stabilised in early May, after the earlier very sharp decline. There has also been a pick-up in some forms of consumer spending.”

However, Dr Lowe warned the economic outlook, as well as the speed of economic recovery, remained highly uncertain, with the COVID-19 crisis to have long-lasting effects on the economy.

“In the period immediately ahead, much will depend on the confidence that people and businesses have about the health situation and their own finances,” he said.

“The substantial, coordinated and unprecedented easing of fiscal and monetary policy in Australia is helping the economy through this difficult period. 

“It is likely that this fiscal and monetary support will be required for some time.”

The RBA’s outlook was in line with the findings of Finder’s RBA Cash Rate Survey, which indicated the shared assessment from economists around the country was that government stimulus should be continued.

Finder said 79 per cent of respondents said the Morrison government’s JobKeeper stimulus should be extended or continued, with just one out of five respondents saying it should be scaled back once businesses can reopen at full capacity.

Queensland University of Technology’s Noel Whittaker said he was pessimistic around Australia’s economic prospects if stimulus measures were switched off.

“We are living in most uncertain times,” Mr Whittaker said.

“In September when the stimulus payments stop, and the loan holidays stop, things may get very bad.”