SYDNEY (Reuters) – Australia’s economic downturn is likely to be less severe than first thought, meaning negative interest rates or extra quantitative easing measures will likely not be required, the country’s central bank chief said on Thursday.
Australia, with a much lower COVID-19 death toll than many other advanced countries, has started resuming normal life barely halfway into the six-month shutdown first flagged by the government.
Still, the outlook is “uncertain”, with inflation seen benign and unemployment high even next year, Reserve Bank of Australia (RBA) Governor Philip Lowe said, suggesting interest rates will stay at a record low of 0.25% for a long time to come.
Earlier this month, the RBA forecast the A$2 trillion ($1.3 trillion) economy would contract by 6% this year and unemployment would rise to 9% while core inflation would undershoot its medium-term target of 2-3% even by mid-2022.
“Since we published those numbers, things have tracked…better than the baseline,” Lowe said, without providing updated estimates.
“With the national health outcomes better than earlier feared, it is possible that the economic downturn will not be as severe as earlier thought. Much depends on how quickly confidence can be restored.”
Australia has recorded just above 7,100 coronavirus cases so far and 103 deaths, with new infections under control across all eight states and territories.
Lowe said the total fall in hours worked was now seen down 15% in the June quarter, from the previous estimate for a 20% fall.
Speaking before a parliamentary committee which is looking at the Australian government’s response to the pandemic, Lowe said the RBA’s mid-March stimulus package, including an unlimited quantitative easing programme, was working “as expected”.
“The package we have got is working. If we had to do more we could purchase more government bonds. But as things stand at the moment, we don’t see the need to doing more,” he said, adding negative interest rates were “extraordinarily unlikely”.
(Reporting by Swati Pandey and Wayne Cole; Editing by Sam Holmes, Richard Pullin and Lincoln Feast.)