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RBA‘s Lowe Doesn’t See Growth Lifting Until the Fourth Quarter from wisepowder's blog

Australia‘s central bank chief said economic growth is unlikely to lift until the final three months of this year, with Victoria’s renewed lockdown to contain an outbreak of Covid-19 “broadly offsetting” the recovery thats been unfolding.To get more news about WikiFX, you can visit wikifx official website.

  “Peoples attitudes to spending are changing because of the pandemic,” Governor Philip Lowe said in his opening statement to a parliamentary panel Friday delivered via video conference. “It is probable that households and businesses will remain more cautious and that this will affect consumption and investment. How long this change might last is hard to tell.”

  Lowe said in his semi-annual testimony that another issue is the “growing impact” of an extended period of weak demand. He cited construction as an industry whose pre-Covid pipeline of work is drying up with firms now “having to scale back.”

  The Reserve Bank of Australia is trying to navigate the economy through a renewed lockdown of Victoria state, which accounts for almost a quarter of gross domestic product, and a broader hit to sentiment sweeping the rest of the country. Victoria earlier this month shuttered large parts of its economy for six weeks after a surge in Covid-19 infections, even after the 5 million residents of state capital Melbourne were ordered to stay at home.

  The governor reiterated that Victoria was likely to cut 2 percentage points from GDP in the current quarter. He also repeated that the RBAs baseline scenario sees the Australian economy contracting by around 6% this year, and then growing by 5% next year.

  Unemployment climbed to 7.5% in July and the RBA expects it to reach 10% later this year due to the impact of Victorias shutdown and people elsewhere in the country resuming their hunt for work, swelling participation. The government has extended its signature JobKeeper wage subsidy and additional JobSeeker welfare support beyond September, though at a lower level.

  “If we take into account people who are on zero hours, the true unemployment rate is higher than the published measure,” Lowe said. “We are expecting the published unemployment rate to decline gradually from 10%, but to still be around 7% in a few years time.”

  The Australian dollar didn‘t really respond to Lowe’s opening statement, and was trading at 71.44 U.S. cents at 10:04 a.m. in Sydney.

  Lowe also addressed the debate over monetary financing. This involves increasing spending and at the same time creating the money needed to pay for it -- typically via central banks.

  They can either buy the bonds sold by a government to cover gaps in its budget -- or simply offer an overdraft, so that no bonds need to be issued in the first place. In either case, its often said that the effect is to “monetize the debt,” because policy makers have turned what would otherwise have been debt into money instead.

  “I want to make it clear that monetary financing of the budget is not on the agenda in Australia,” the governor said.

  “The separation of monetary policy and fiscal financing is part of Australias strong institutional framework and has served the country well,” he said. “The Australian government and the states and territories have ready access to the capital markets and they can borrow at historically low rates of interest.”

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By wisepowder
Added Oct 11

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