The RBA has announced its latest decision on interest rates as September’s “fiscal cliff” looms large.
The RBA has kept rates on hold at their historic low of 0.25 per cent.
“The substantial, co-ordinated and unprecedented easing of fiscal and monetary policy in Australia is helping the economy through this difficult period,” RBA governor Philip Lowe said in a statement. “It is likely that fiscal and monetary support will be required for some time.”
Interest rates will likely be “nailed to the floor for years” according to Chris Richardson, partner at Deloitte Access Economics.
“That’s because (1) this is a big recession, (2) inflation is as dead as a door nail, (3) governments will bow out of their support, leaving it up to central banks to repair economies, (4) economies are more accident-prone than ever before, so central banks will be super cautious and, finally, because (5) interest rates are more powerful than ever,” Mr Richardson said.
While the economic outlook is now more positive than in the dark days of March, when the RBA slashed rates to their current low level, there’s still plenty more damage to be done as renewed lockdowns and the end of fiscal support threaten the recovery.
“While positive sentiment has increased in recent weeks as the economy and trade starts to open up, the big concern is what happens in and around September when the stimulus (consumer and commercial) packages potentially come to an end – namely, JobKeeper, JobSeeker, rental abatement, a home loan repayment reprieve (mortgage holidays), insolvency/bankruptcy legislation and safe harbour changes,” said CreditorWatch CEO Patrick Coghlan.
“There’ll be a serious shock to the economy as people are once again forced to start paying the bills and/or stop receiving government incentives.”
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