Australia needs ‘considerable’ policy support

SYDNEY: The Australian economy has done better than feared during the coronavirus crisis though the hit to growth will have a “long-lived impact” requiring policy support for years to come, according to a top central bank official.

“There is considerable uncertainty over the path from here,” Reserve Bank of Australia (RBA) deputy governor Guy Debelle said.

“This uncertainty includes the behavioural responses as health restrictions are eased. There is also considerable uncertainty about the future, which will affect the decisions of businesses and households,” he added.

“The Reserve Bank will maintain the current policies to keep borrowing costs low and credit available, and stands ready to do more as the circumstances warrant.”

The RBA slashed its cash rate to a record low 0.25% in an emergency meeting in midMarch as entire sectors of the economy shut down to curb the spread of Covid-19.

The board’s guidance is that the cash rate target will not be raised until it achieves its inflation and employment goals.

“Given the outlook for inflation and the labour market, this is likely to be some years away,” Debelle said.

Debelle said Australia’s A$2 trillion (US$1.4 trillion) economy had performed somewhat better in the June quarter than feared, although he pointed out that declines in both gross domestic product (GDP) and hours worked were historically large.

He noted the importance of fiscal stimulus in supporting the economy by invoking former chief economist of the International Monetary Fund, Olivier Blanchard.

“There are no concerns at all about fiscal sustainability from increased debt issuance,” he said citing Blanchard.