- RBA governor Philip Lowe delivered an address to National Press Club, where he discussed the economic impact of the bushfires and the coronavirus outbreak.
- On both counts, he argued the impact on the Australian economy would only be in the short-term, though he conceded the RBA was monitoring the coronavirus situation closely.
- Lowe also discussed Australian monetary policy after yesterday's announcement interest rates would be kept steady.
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Following yesterday's announcement from the Reserve Bank of Australia (RBA) that the interest rate would remain steady at 0.75%, top dog Philip Lowe has elaborated further on the state of the economy in an address to the National Press Club (NPC).
Of particular interest were the RBA governor's comments on bushfires and the coronavirus – two recent crises which many suggest will have lasting impacts on the economy and the government's bottom line.
While acknowledging the "very large" economic impact of the bushfires on the directly-affected areas, Lowe said he expects the GDP growth for 2020 as a whole will be largely unaffected.
"In assessing the impact of this on the Australian economy as a whole we have taken into account that there will be a material rebuilding effort and that government grants and insurance payments will assist many people," he said.
Nonetheless, Lowe said, there would be a noticeable impact on the December quarter last year and the current quarter.
He was slightly vaguer on the impact of the coronavirus, citing the general uncertainty around its continuing impact, but suggested the SARS outbreak of 2003 could be used as a guide.
"On that occasion, there was a sharp slowing in output growth in China for a few months, before a sharp bounce-back as the outbreak was controlled and economic stimulus measures were introduced," he said.
"Today, China is a larger part of the global economy and it is more closely integrated, including with Australia, so the international spillovers could be larger than they were back in 2003. Much will depend on the success of the various efforts to control the virus so we are monitoring developments closely."
Lowe defended low interest rates, but conceded there could be issues
Perhaps seeking to assuage concerns about rock-bottom interest rates in Australia, Lowe argued the active monetary policy had provided "considerable support to the Australian economy".
In fact, Lowe said, the Board had contemplated a more aggressive program of cuts as a way of speeding the pace of progress towards full employment and inflation targets.
"It certainly remains the case that a further reduction in interest rates would help with the balance sheet adjustment by households with existing debt, which should help bring forward the day that consumption strengthens," Lowe said.
"It would also have a further effect on the exchange rate, which would boost demand for our exports and therefore support jobs growth."
However, Lowe agreed there would be issues with such an approach, citing both international issues with resource allocation in periods of extremely low interest rates and a possible effect on housing prices.
With prices in every Australian city currently rising at a rate some experts describe as "unsustainable", one can certainly understand the desire to keep things stable. But, Lowe said, the situation could change.
"If the unemployment rate were to be trending in the wrong direction and there was no further progress being made towards the inflation target, the balance of arguments would change," he said.
"In those circumstances, the Board would see a stronger case for further monetary easing."