MNI POLICY: Downturn Severe, May Beat First Fears: RBA Minutes

By Lachlan Colquhoun

     LONDON (MNI) - The decline in hours worked by Australian workers over the

Covid-19 disruptions "may be less" than had been initially feared, according to

the Minutes of the Reserve Bank of Australia's June 2 meeting, with the economic

outlook perhaps better than first expected.

     While acknowledging that the Australian economy is experiencing its biggest

contraction since the 1930s, the Minutes show the RBA believes Australia's

public health success in containing the Covid-19 virus will flow through to the

economic recovery., with the hope of a better outcome than in most advanced

economies.

     Meeting just ahead of the publication of Q1 GDP data, which showed the

Australian economy contracted by 0.3%, the RBA kept official interest rates on

hold at a record low 0.25%, maintaining its program of purchasing Government

bonds, saying its measures were working as expected, although it noted some

yield discrepancies in the shorter-end of the curve.

     "In some of the industries that had been most affected by the restrictions

on activity, the number of jobs had stabilised or increased a little, suggesting

that the total decline in hours worked may be less than have previously been

feared," the Minutes said.

     Although this was a "welcome development", there was still a significant

deterioration in labour conditions.

     The pipeline of work for many firms was diminishing as firms deferred or

cancelled investment and business conditions in April remained well below

average.

     The housing market, however, had stabilised, although the outlook for

dwelling investment was weak.

     On the markets, the Bank noted that activity in business funding markets

had picked up with a pick up in bond issuance by non-financial corporations.

     In its conclusion, the Minutes show the RBA sees a combination of its

policy measures and the fiscal stimulus from the Government as "helping the

economy through this difficult period."

     The Bank was committed to its current accommodative approach for "as long

as required."

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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