MNI INTERVIEW: Fiscal Lift Counters Lockdown Drag-RBA's Harper

Fiscal stimulus to address the impact of extended Covid-19 lockdowns in Sydney should mitigate the impact on employment and growth and it is "still too early to tell" whether a resurgent pandemic will derail a V-shaped recovery, Reserve Bank of Australia board Ian Harper told MNI.

While there is downside risk, both state and national governments have moved quickly to provide fiscal relief, said Harper, dean of Melbourne University Business School, who was also sanguine regarding the prospect of slower economic growth in China, following last week's surprise reserve requirement ratio cut by the PBOC.

"If the downturn [in China] is mostly consumption rather than investment, the impact on the iron ore price will be very limited," Harper said, speaking to MNI in a private capacity. Recent highs for iron ore prices had not had a major impact on the Australian dollar, so any reversal "might not bring it so low," he added.

BORDER CLOSURES, WAGE PRESSURES

International and state border closures have affected industries traditionally reliant on migrant labour, but it was unclear whether this was producing wage rises in these industries, said Harper, agreeing with RBA Governor Philip Lowe's recent comments that immigration in recent years had kept wages low in low-skilled occupations.

Many businesses facing labour shortages through the pandemic had "rationed output" rather than raising wages to attract workers, Harper said.

The RBA wants wages growth, currently at around 1.5%, to reach 3% to drive inflation into its target range of between 2% and 3%.

Last week, the RBA opted against extending the duration of yield targeting, leaving rates and guidance little changed with a return to full employment a priority.

New South Wales is estimated to be suffering an economic hit of AUD1 billion weekly as a result of the new lockdown, which has been countered by a new stimulus package estimated at AUD500 million per week.