SYDNEY (Reuters) – Australia’s economic future was “unusually uncertain” while growth was expected to remain in the slow lane without a medical breakthrough to prevent and treat COVID-19, the head of the country’s central bank said on Thursday.
The remarks come as Australia re-opens its economy sooner than expected. The country has reported just over 7,000 COVID-19 infections with 100 deaths, well below the disturbing outcomes in several other advanced nations.
Reserve Bank of Australia (RBA) Governor Philip Lowe said early evidence showed countries with fewer restrictions were also experiencing very large economic contractions, suggesting individuals and businesses were reluctant to spend in the current environment.
“Restoring confidence on the health front is a precondition for a strong (economic) recovery,” Lowe said, responding to a question during an online panel discussion.
“That would help both in Australia and globally,” he added.
“We might get a vaccine, we might get some anti-viral medication, but it’s also possible that we don’t. So we have an incredible lot riding on the work of the scientists.”
In his opening remarks, Lowe said Australians were living through the biggest and the most sudden economic contraction since the 1930s and the future was unusually uncertain.
Australia’s cash rate is already at a record low of 0.25% after an emergency cut in March. The government is also splashing out cash, including a A$130 billion ($85.12 billion) wage subsidy scheme.
“One obvious source of uncertainty is the pace at which the various restrictions are eased. Another source of uncertainty is the level of confidence that people have about their future, both in terms of their health and their own finances.
Lowe said the RBA was prepared to scale up its bond purchases, if necessary to keep three-year yields at around 0.25%.
When asked if the bank would consider negative interest rates, Lowe reiterated it was “extraordinarily unlikely.”
($1 = 1.5272 Australian dollars)
(Reporting by Swati Pandey; Editing by Kim Coghill and Sam Holmes)