The Reserve Bank of Australia Reports this week; the central bank will likely be scrambling to get the most recent data incorporated into the next report, trying to account for the Covid-19 situation in Victoria. Over the weekend the state of Victoria entered phase 4 lockdown restrictions, the most extreme seen in Australia thus far, after declaring a state of disaster. Residents are on orders to stay within their abodes unless it is for work, exercise, medical care or food.
The changes made to Victoria’s operations will cause large scale effects for the Australian economy, with Victoria contributing approximately 22% to total Gross Domestic Product. Outside of Victoria infections have remained low but nonetheless most states have taken their own levels of caution with borders locked for non-essential travel, and hefty fines for those that do not abide.
Clearly this will have a negative effect to the Australian economy, how deep is up for debate but at this stage estimates are for a 0.75% fall in GDP. For Australia’s first recession in 30 years the symptoms of COVID-19 are weighing much heavier on the recovery efforts of the central bank than first forecast.
This week the Reserve Bank of Australia is due for cash rate updates and a monetary policy report later in the week on Friday. While the last update we saw hinted at what could have been done to the cash rate the likely hood of further cuts down to 0.10% is low in my book. Governor Phillip Lowe , Reserve Bank of Australia has stipulated that the current 0.25% was the lowest the Australian economy could afford to drop; the changes I see are more likely to challenge the deflationary environment through an extension of existing policy.
This period for the Reserve Bank of Australia will be an uncertain one, and likely the most eagerly anticipated policy report of the 2020 period, so keep your eyes on the AUD.