SYDNEY (Reuters) – Australia’s central bank should immediately boost its bond purchase programme from A$5 billion per week to A$6 billion, Westpac chief economist Bill Evans said, in order to cushion the economy from the impact of the COVID-19 lockdown in Sydney.
“Immediately lifting the purchase pace … would send exactly the right message – the new flexible policy is responding to a significant deterioration in the economic outlook,” Evans wrote in a note on Thursday.
Evans said the Reserve Bank of Australia (RBA) should also commit to maintaining the A$6 billion purchase through to November “in recognition of the economy’s sudden deterioration and the uncertainty around the recovery phase”.
Earlier on Thursday, Westpac downgraded its forecast for Australia’s A$2 trillion economy, predicting a 2.2% contraction in the third quarter, from a previous expectation for a 0.7% contraction.
The revision reflected an expected 7.8% contraction in New South Wales’ (NSW) economy this quarter as a result of a lengthy coronavirus lockdown in its capital, Sydney, which is poised to enter its sixth week of lockdown.
New daily cases in the city surged to a record high of 239 on Thursday with growing fears the stay-home orders could extend to September, wreaking havoc on the economy.
The RBA will hold its monthly Board meeting on Aug.3 where it is widely expected to leave its cash rate at a record low 0.1% and reverse an earlier decision to taper its bond purchases to A$4 billion per week. [AU/INT]
(Reporting by Swati Pandey; Editing by Simon Cameron-Moore)