Statement by Philip Lowe, Governor: Monetary Policy Decision

At its meeting today, the Board decided to maintain the current policy settings, including the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points. 

The global economy is experiencing a severe downturn as countries seek to contain the coronavirus. Many people have lost their jobs and a sharp rise in unemployment is occurring. At the same time, the containment measures have reduced infection rates in a number of countries. If this continues, a recovery in the global economy will start later this year, supported by both the large fiscal packages and the significant easing in monetary policies.

Globally, financial markets are working more effectively than they were a month ago, although conditions have not completely normalised. This improvement reflects both the decline in infection rates and the substantial measures undertaken by central banks and fiscal authorities. Credit markets have progressively opened to more firms and long-term bond rates remain at historically low levels.

In Australia, the functioning of the government bond markets has improved and the yield on 3-year Australian Government Securities (AGS) is at the target of around 25 basis points. Given these developments, the Bank has scaled back the size and frequency of bond purchases, which to date have totalled around $50 billion. The Bank is prepared to scale-up these purchases again and will do whatever is necessary to ensure bond markets remain functional and to achieve the yield target for 3-year AGS. The target will remain in place until progress is being made towards the goals for full employment and inflation.

The Bank's daily open market operations are continuing to support credit and maintain low funding costs in the economy. To assist with the smooth functioning of Australia's capital markets, the Bank has decided to broaden the range of eligible collateral for these operations to include Australian dollar securities issued by non-bank corporations with an investment grade credit rating. More details are provided in the accompanying market notice.

The Australian economy is going through a very difficult period and there is considerable uncertainty about the outlook. Reflecting this uncertainty, the Board considered a range of scenarios at its meeting. In the baseline scenario, output falls by around 10 per cent over the first half of 2020 and by around 6 per cent over the year as a whole. This is followed by a bounce-back of 6 per cent next year.

There has been a substantial, coordinated and unprecedented fiscal and monetary response in Australia to the coronavirus. Without this response, the outlook would have been even more challenging. These policies are supporting the economy right now and will help when the recovery comes. They are supporting people's incomes, maintaining the important connections between businesses and their employees, underpinning the supply of credit to businesses and households, and keeping borrowing costs low. The deferral of loan and other payments is helping people manage their cash flows. The Australian banking system, with its strong buffers of capital and liquidity, is also helping the economy traverse this difficult period.

In the baseline scenario considered by the Board, the unemployment rate peaks at around 10 per cent over coming months and is still above 7 per cent at the end of next year. A lower unemployment rate than this is possible if the reduction in labour demand is accompanied by a larger reduction in average hours worked, rather than by people losing their jobs.

The Board also considered other scenarios. A stronger economic recovery is possible if there is further substantial progress in containing the coronavirus in the near term and there is a faster return to normal economic activity. On the other hand, if the lifting of restrictions is delayed or the restrictions need to be reimposed or household and business confidence remains low, the outcomes would be even more challenging than those in the baseline scenario. These scenarios will be discussed in the Statement on Monetary Policy, to be released later this week.

In the various scenarios considered by the Board, inflation remains below 2 per cent over the next few years. In the March quarter just passed, CPI inflation rose to 2.2 per cent, but it is expected to turn negative temporarily in the June quarter, due to falls in oil prices, the introduction of free child care and deferrals of various price increases. Further out, in the baseline scenario inflation is 1 to 1½ per cent in 2021 and gradually picks up further from there.

Given this outlook, the Bank will maintain its efforts to keep funding costs low in Australia and credit available to households and businesses. The Board is committed to do what it can to support jobs, incomes and businesses during this difficult period and to make sure that Australia is well placed for the expected recovery. The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band.

To help you navigate the Government benefits available as a consequence of Covid-19, here's a breakdown of the latest Australian Government announcements. 

 JobKeeper

Applications now open. Main criteria business income reduced by at least 30%.

$100,000 Cash Flow Boost
Main criteria business income reduced by at least 30% and pays wages.

Instant Asset Write-Off Accelerated Depreciation
Main criteria acquired and installed between 12th March 2020 and 30th June, 2021.

Lease Code of Conduct
Commercial and Retail Lease Code of Conduct

Bank Loans
Bank Loans and rearrangements may apply depending on your bank (subject to conditions).

NSW Covid-19 Small Business Support Grant
$10,000 NSW Covid-10 Small Business Support Grant applications open 17th April, 2020 and close 1st June, 2020.
The key criteria is a 75% decline in turnover.

City of Sydney Council Small Business Grant
$10,000 City of Sydney Council Small Business Grant applications are now open and close on 27th April, 2020 (subject to conditions).

Exporters
Exporters affected by Covid-19 may be eligible for finance.

Landlords
Eligible landlords can apply for NSW Land Tax reduction (up to 25%) of their 2020 Land Tax liability on NSW properties (subject to conditions).

Payroll Tax
A Payroll Tax discount of 25% or deferral may apply to employers with Grouped Australian wages (subject to conditions).

NSW Fees and Charges
Removal and/or deferral of various industry fees and charges in NSW (subject to conditions).

Superannuation
Access to $10,000 of your superannuation before 30th June, 2020 and $10,000 after 30th June, 2020 (subject to conditions).

Some benefits and concessions also apply depending on your region.

Please call us if we can help in any way on (02) 9476 2200 or contact us here.

Your financial security is our concern.

Beware of the Next Virus... It’s Coming!

The Corona Virus is the forerunner. This one is unavoidable! It will infect every living soul, no exceptions. It’s not fatal, but it is potentially disastrous.

It is a direct consequence of the Corona Virus, and no-one can escape this one.

Where is this horror-virus coming from?

We are breeding it. Deliberately. Here in Australia. So is every other country in the World.

Why? How? What is it?

As we know, our government - and governments everywhere - are embarking on “economic stimulus packages” to counter the disastrous effects of the current pandemic.

This is commendable and necessary.

However, it means one thing: they are spending money. But it's money they don’t have! They will have to print it!

This translates to one inevitable result: a highly infective economic virus.

It’s called INFLATION.

Inflation means RISING PRICES - of everything. Your Cash will lose value. Your money will buy less at the shops. Everything will cost more.

You will be poorer - inevitably.

Australia has enjoyed almost three decades of economic prosperity and negligible Inflation.

No doubt, we are well placed to weather the economic storm, but - unavoidably - the price will be high inflation - the disease of the 1970’s and 1980’s, but this outbreak will likely be worse.

Here’s the Question

Is Cash (in the bank, or under the bed, or in your SuperFund) the safest asset?

Interest rates are the lowest in living memory and are destined to fall further. Couple this fact with the government’s printing money and we have a potent formula for personal financial disaster.

The Lesson - The Safeguard

Do not be tempted to turn your investment assets - whatever they are - into Cash.

Inflation means that you will need more cash to pay for goods and services, certainly. But equally, you’ll need more cash to buy shares and real estate. They - notwithstanding the present (and future) volatility - will hold, and increase their value.

From past experience, real property - that is, shares and real estate, and not cash - will prove to be the safe haven for your investments.

In summary, we know the economic virus is coming, but - to the wise and the practical - and the faithful - we can avoid infection.

Cash is certainly not the medicine. Cash could be the problem.

Please call us if you have any concerns on (02) 9476 2200 or contact us here.

Your financial security is our concern.

Statement by Philip Lowe, Governor: Monetary Policy Decision

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 0.50 per cent. The Board took this decision to support the economy as it responds to the global coronavirus outbreak.

The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than earlier expected. Prior to the outbreak, there were signs that the slowdown in the global economy that started in 2018 was coming to an end. It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path. Policy measures have been announced in several countries, including China, which will help support growth. Inflation remains low almost everywhere and unemployment rates are at multi-decade lows in many countries.

Long-term government bond yields have fallen to record lows in many countries, including Australia. The Australian dollar has also depreciated further recently and is at its lowest level for many years. In most economies, including the United States, there is an expectation of further monetary stimulus over coming months. Financial markets have been volatile as market participants assess the risks associated with the coronavirus. Australia's financial markets are operating effectively and the Bank will ensure that the Australian financial system has sufficient liquidity.

The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors. The uncertainty that it is creating is also likely to affect domestic spending. As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected. Given the evolving situation, it is difficult to predict how large and long-lasting the effect will be. Once the coronavirus is contained, the Australian economy is expected to return to an improving trend. This outlook is supported by the low level of interest rates, high levels of spending on infrastructure, the lower exchange rate, a positive outlook for the resources sector and expected recoveries in residential construction and household consumption. The Australian Government has also indicated that it will assist areas of the economy most affected by the coronavirus.

The unemployment rate increased in January to 5.3 per cent and has been around 5¼ per cent since April last year. Wages growth remains subdued and is not expected to pick up for some time. A gradual lift in wages growth would be a welcome development and is needed for inflation to be sustainably within the 2–3 per cent target range.

There are further signs of a pick-up in established housing markets, with prices rising in most markets, in some cases quite strongly. Mortgage loan commitments have also picked up, although demand for credit by investors remains subdued. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality. Credit conditions for small and medium-sized businesses remain tight.

The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target. The Board therefore judged that it was appropriate to ease monetary policy further to provide additional support to employment and economic activity. It will continue to monitor developments closely and to assess the implications of the coronavirus for the economy. The Board is prepared to ease monetary policy further to support the Australian economy.