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Bushfires and coronavirus to weigh on economy: RBA

Maja Garaca Djurdjevic
Maja Garaca Djurdjevic
05 February 2020 1 minute readShare
RBA

In announcing the Reserve Bank’s decision to leave the cash rate unchanged at 0.75 of a percentage point, governor Philip Lowe said that the bushfires and the coronavirus outbreak are expected to temporarily weigh on domestic growth.

At its meeting on Tuesday, the RBA said it will be keeping the cash rate unchanged at a record-low 0.75 of a percentage point, having recognised “the long and variable lags in the transmission of monetary policy”.  

Commenting on the decision to keep rates on hold, the governor explained: “The central scenario is for the Australian economy to grow by around 2.75 per cent this year and 3 per cent next year, which would be a step up from the growth rates over the past two years. In the short term, the bushfires and the coronavirus outbreak will temporarily weigh on domestic growth.”

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Mr Lowe further said that “due to both global and domestic factors”, it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target.

“The board will continue to monitor developments carefully, including in the labour market,” the governor said.

 

“It remains prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”

Parliamentary grilling

Mr Lowe is due to appear in front of the House of Representatives Standing Committee on Economics on 7 February, where the RBA’s actions will be questioned in the context of Australia’s broader macroeconomic conditions.

Since the RBA appeared before the committee during the previous Parliament in August 2019, the RBA has eased monetary policy by 25 basis points to 0.75 of a percentage point.

The Chair of the House Economics Committee, Mr Tim Wilson MP, said: “The committee will examine the decisions of the RBA in the context of Australia’s broader macroeconomic conditions and assess the RBA’s confidence in current monetary policy settings which aim to encourage growth and keep inflation consistent with the target over the coming years.”

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In its response last year, the RBA said that things changed abruptly in late 2018, with lower than expected growth and inflation but more upbeat employment growth than had been anticipated.

This shift, it said, was exacerbated by a global slowdown and business sentiment easing back from “well above-average” levels.

Bushfires and coronavirus to weigh on economy: RBA
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Maja Garaca Djurdjevic
Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of My Business. 

Maja has a decade-long career in journalism across finance, business and politics. Now a well-versed reporter in the SME and accounting arena, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies and enabling citizens to influence decision-making.

You can email Maja on [email protected] 

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