Australia’s central bank yesterday slashed interest rates to historic lows and ramped up its huge bond-buying program in a push to revive the country’s COVID-19 pandemic-hit economy as it emerges from lockdowns.
However, Reserve Bank of Australia Governor Philip Lowe warned that the recovery would depend on keeping a lid on COVID-19, which is seeing a resurgence in key markets in the US and Europe.
The central bank cut the cash rate from 0.25 percent to 0.1 percent and committed to buying A$100 billion (US$70.5 billion) of five to 10-year government bonds over the next six months.
Lowe said the measures were designed to lower the cost of borrowing and push the Australian dollar lower to stimulate growth.
The Australian dollar slipped to US$0.704, from US$0.705 before the announcement.
The move came as the bank expects the economy to expand in the third quarter after Australia entered its first recession in nearly 30 years.
“Even so, the recovery is still expected to be bumpy and drawn out, and the outlook remains dependent on successful containment of the virus,” Lowe said in a statement announcing the measures.
Australia had been recovering from the initial impact of virus lockdowns before its second-biggest city, Melbourne, was forced into another to contain a new outbreak.
However, the city reopened late last month after months of restrictions, sparking hopes that a return to normality would hasten the country’s economic recovery.
Unemployment hit 6.9 percent in September, with almost 1 million Australians out of work and many more taking pay cuts or seeing hours reduced since the pandemic began.
The government and central bank had already embarked on a vast stimulus program to avert a full-blown depression, putting the country on track to post a record budget deficit of A$213.7 billion this year.
The bank expects unemployment to peak at just below 8 percent — less than the 10 percent expected previously — but hopes to drive the rate lower.
Economic growth is expected to be about 6 percent over the year to June next year and 4 percent in 2022, it said.
Lowe said it would “take some time to reach the pre-pandemic level of output,” with the coming years expected to feature “subdued increases in wages and prices.”
“Given the outlook for both employment and inflation, monetary and fiscal support will be required for some time,” he added.
The intervention in the bond market builds on an earlier bond-buying program announced in March, and the bank’s board said it was “prepared to do more if necessary.”
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