RBA holds rates amid 'highly uncertain' outlook
The Reserve Bank has held official interest rates steady, saying while the economy was going through its biggest economic contraction since the 1930s, there were signs the worst might be behind the country.
Following its regular monthly meeting, RBA governor Philip Lowe confirmed the cash rate would remain at a record-low 0.25 per cent for another month.
The RBA said the outlook was highly uncertain while arguing the pandemic was likely to have "long-lasting effects on the economy".Credit:Peter Braig
"It is possible that the depth of the downturn will be less than earlier expected," Dr Lowe said in a statement accompanying the decision.
"The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely.
"And there are signs that hours worked stabilised in early May, after the earlier very sharp decline. There has also been a pick-up in some forms of consumer spending."
Dr Lowe said despite these positive signs, the outlook was highly uncertain and the pandemic was likely to have "long-lasting effects on the economy".
"In the period immediately ahead, much will depend on the confidence that people and businesses have about the health situation and their own finances," he said.
Dr Lowe said government spending and low interest rates would be required for some time. He repeated that the RBA would not lift official interest rates until the jobs market improved markedly and inflation was on its way to the bank's 2-3 per cent target band.
Market analysts had been expecting the decision despite calls from one of the nation's most senior economists, Westpac's Bill Evans, for the RBA to consider negative interest rates to accelerate growth and put downward pressure on the Australian dollar.
The bank took the cash rate down to 0.25 per cent in late March while undertaking a suite of measures to support the economy, including the purchase of more than $50 billion in state government bonds and extending $90 billion to banks prepared to lend to small and medium-sized businesses.
The RBA's decision comes ahead of Wednesday's March national accounts.
Partial elements of the national accounts, released on Tuesday, show net exports will likely add 0.5 percentage points to GDP growth for the quarter. The Australian Bureau of Statistics reported while export volumes slipped in the first three months of the year, this was more than offset by a much larger drop in imports. Imports of capital goods alone fell 10 per cent.
Government spending in the quarter, the ABS said, was likely to add 0.3 percentage points to growth.
But wages and salaries paid by businesses were flat through the same period while inventories dropped by 1.2 per cent. It was the largest quarterly drop in inventories in six years, stripping up to 0.5 percentage points from growth.