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The central bank of Australia says it's ready to act if Covid lockdowns threaten the economy

The central bank of Australia says it's ready to act

August 18, 2021: -On Tuesday, Australia’s central bank would be prepared to take policy action should coronavirus lockdowns across the country threaten a more profound economic setback, minutes from its August meeting showed.

That outcome now looks likely as the delta variant spreads, piling pressure on the Reserve Bank of Australia (RBA), delaying planned tapering of its bond-buying program or even to ease.

The chance of fresh stimulus had the local dollar slip a quarter of a cent to $0.7308, while 10-year bond yields decreased to near seven-month lows at 1.16%.

The RBA Board had been optimistic at its meeting on August 3 that the economy would recover once coronavirus lockdowns relax. As a result, it decided to stick to the plans to trim its weekly bond-buying to 4 billion Australian dollars from the current AU$5 billion pace.

Yet minutes showed it would also keep reviewing the bond-buying plan as the health situation developed. “The Board would be prepared to act in response to further bad news on the health front should that lead to a more significant setback for the economic recovery,” the minutes showed.

After that, the news has been consistently bad as lockdowns spread from Sydney to the capital of Canberra and 2,500 kilometers to the Northern Territory.

Melbourne is under curfew as authorities struggle to stem the spread of the delta variant. Two-thirds of the 25 million citizens are effectively shut-in, and whole sectors of retailing and services are shut down.

Economists have responded to their economic outlook, leaving the RBA’s recent prediction of 4% growth for 2021, which looks increasingly untenable.

“Lockdowns are likely to have a very acute impact on the economy, much more than what the RBA had penciled in only a week ago,” warns NAB economist Tapas Strickland.

Covid disaster payments to those who lose jobs or hours worked have gone out to 1.2 million people, or over 9% of the workforce, leading Strickland to forecast an increase in unemployment to 5.6% in September, from the current 4.9%.

The RBA had forecast a rate of 5% by year-end for joblessness. Westpac’s chief economist Bill Evans now sees the economy contracting by an eye-watering 2.6% this quarter before rebounding by Christmas as vaccination rates reach 70%.

“Under these estimates, the Australian economy grows by 2.4% in 2021, down from 3.2% in our earlier forecast,” said Evans.

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