Interest rates to shield Australian economy from COVID-19, says RBA

The Reserve Bank last week took official interest rates to a fresh all-time low of 0.5 per cent with markets expecting another quarter percentage point cut at its meeting next month.

Dr Debelle said even if interest rate cuts were not used by households to spend more, they would eventually feed through to the broader economy.


“Lower interest rates will provide more disposable income to the household sector and those businesses with debt,” he said.

“They may not spend it straight away, but it brings forward the day when they will be comfortable with their balance sheets and resume a normal pattern of spending.”

“Monetary policy also works through the exchange rate which will help mitigate the effect of the virus’ impact on external demand.”

The Morrison government is expected to announce later this week its stimulus package to help the economy.

Dr Debelle said that package, along with rate cuts, would stabilise the economy.

“The government has announced its intention to support jobs, incomes, small business
and investment which will provide welcome support to the economy,” he said.

“The combined effect of fiscal and monetary policy will help us navigate a difficult period for the
Australian economy. They will also help ensure the Australian economy is well placed to bounce back quickly once the virus is contained.”

While most analysts believe the economy will contract through the March quarter there is still doubt about the following quarter. Back-to-back quarters of negative growth are widely considered to constitute a recession.

Dr Debelle said the bank’s discussions with the business sector suggested there were already supply chain disruptions affecting the construction and retail sectors.


But he would not be drawn on how the June quarter was looking.

“It is just too uncertain to assess the impact of the virus beyond the March quarter,” he said.

Dr Debelle said the Australian dollar had fallen by six per cent against the US dollar since the start of the year, a development that was positive for the economy.

“This will provide a helpful boost to the Australian economy and has occurred despite the
prices of the bulk commodities, iron ore and coal, remaining resilient,” he said.

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