What’s on the cards for Australia now that we have a second wave?

The Reserve Bank of Australia (RBA) had its August board meeting on Tuesday 4th, and though there were no real surprises, I think we can expect more out of the central bank in the coming months.

In its meeting, the RBA made mention of the situation unfolding in Victoria, which is sadly seeing COVID-19 infect more people in the state now than it did back at the pandemic’s initial outbreak in March and April. I think this is what will trigger further response from the central bank.

Source: covid19data.com.au

The stage four lockdown which has ensued in Victoria will dent Australia’s recovery, and the central bank has previously said it will do everything in in its power to support the economy through this period. As a result, I think we can expect more broad-based quantitative easing from the RBA.

The central bank has said it doesn’t want negative interest rates, though there is a possibility it could cut rates to 0.1%. It’s questionable whether this would really have much impact, but it remains a possibility. The RBA has also said it doesn’t want to directly finance government spending, or intervene in the foreign exchange market.

In addition to this, there will be more pressure on the federal government for stimulus, as growth takes more of a hit than forecast in the current quarter from the situation in Victoria. As such, we can expect more support measures from Canberra in the months ahead.

Author: Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist, AMP Capital Sydney, Australia

Source: AMP Capital 6 August 2020

Reproduced with the permission of the AMP Capital. This article was originally published at AMP Capital

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