By Swati Pandey
SYDNEY (Reuters) – Australia’s central bank was worried about the potential for a “very material contraction” in economic activity when it decided to foray into quantitative easing in an out-of-cycle meeting last month, minutes released on Wednesday showed.
The Reserve Bank of Australia (RBA) held an ad-hoc meeting on March 18 when it reduced its cash rate to a record low 0.25% and embarked on a bond buying program to try and shield the economy from the devastation caused by the coronavirus pandemic.
The RBA said it was not possible to provide an updated set of economic forecasts, given the “fluidity of the situation” though it was “likely that Australia would experience a very material contraction”.
The number of coronavirus cases in Australia now exceeds 4,500 with 20 deaths. Authorities, worried about the spread of infection within the community, have rolled out increasingly restrictive measures to combat the virus.
The RBA warned the economic contraction in Australia could potentially linger beyond the June quarter.
“The size of the fall in economic activity would depend on the extent of the social distancing requirements, and potential lockdowns, put in place to contain the virus,” minutes showed.
“There were likely to be significant job losses over the months ahead, although the extent of this would depend on the capacity of businesses to retain employees during this period.”
Economists at Westpac are predicting Australia’s unemployment rate will soar above 11% by June and annual economic output will shrink by 3% in 2020.
Australia has not had two consecutive quarters of economic contraction since the early 1990s.
Australia’s A$2 trillion ($1.23 trillion) economy expanded by 2.2% in the December quarter from a year earlier, while the jobless rate fell to 5.1% in February.
Earlier this week, the head of Commonwealth Bank of Australia
(This story has been refiled to correct day in first paragraph to Wednesday, not Tuesday).
(Reporting by Swati Pandey; Editing by Christian Schmollinger and Lincoln Feast.)
