Australia central bank government says policy easing will have more effect as economy reopens

SYDNEY (Reuters) – Australia’s top central banker said on Thursday monetary easing would become more effective as the economy loosens its coronavirus restrictions, an indication another cut to the official cash rate was under consideration.

FILE PHOTO: A worker pushing a trolley walks with pedestrians past the Reserve Bank of Australia (RBA) head office in central Sydney, Australia, March 7, 2017. REUTERS/David Gray

The Reserve Bank of Australia (RBA) has left the cash rate at a record low 0.25% since an emergency cut in March, but has recently pledged to do more to boost growth.

In a speech in Sydney, Governor Philip Lowe said the Board has been considering what more it can do to support jobs, incomes and businesses to help build the “road to recovery,” though a decision has not yet been made.

The dovish remarks sent the Australian dollar sliding to a one-week low of $0.7129.

“When the pandemic was at its worst and there were severe restrictions on activity we judged that there was little to be gained from further monetary easing,” Lowe said.

“The solutions to the problems the country faced lay elsewhere,” Lowe added referring to fiscal policy, which he said, has provided “welcome support” to the economy.

“As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was the case earlier.”

Lowe said the RBA would review how much traction any further monetary easing might get to rescue the country’s economy from recession at its upcoming board meetings.

Another issue the RBA board was considering was the possible effect of further easing on financial stability and long-term macroeconomic stability.

The implications of larger balance-sheet expansion by other central banks were another consideration as the RBA works at potential policy options, Lowe added.

“These are three of the complex issues we have been considering at our recent Board meetings,” Lowe said.

“The Board will continue to review these and other issues at our upcoming meetings. We are committed to do what we reasonably can, with the tools we have, to support the recovery of the Australian economy.”

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