RBA ‘prepared to act’ to offset impact of Delta crisis

The RBA says it’s ready to do more to support the economy should the Delta crisis worsen and lead to a ‘more significant setback’ for the recovery.

The Reserve Bank of Australia is ready to step in and do more to support the economy through the Delta crisis, if needed.

The Reserve Bank will step in and do more to support the economy should the Delta crisis worsen and lead to a “more significant setback” for the recovery, according to minutes from the bank’s most recent meeting.

Economists said the statement revealed the circumstances required for the central bank to renege on a plan to wind back its bond-buying program next month from $5bn a week to $4bn a week.

The RBA board next meets on September 7 and analysts said this Thursday’s unemployment figures would be “critical” to any decision around the future pace of bond purchases.

RBA board members said that fiscal support via the Commonwealth and state governments was the “more appropriate” tool to help businesses and workers stay afloat through lockdowns now in place across NSW, Victoria, the ACT and parts of the Northern Territory.

The board “welcomed the substantial fiscal measures that had been announced”, but was “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”.

Members discussed how “the current virus outbreaks and lockdowns had interrupted the recovery and many households and businesses were facing difficult conditions”.

ANZ data released on Tuesday showed that card spending by its customers over the week to Sunday had dropped to around its lowest level since April of last year, when the entire nation was in lockdown. Spending in Sydney was 27 per cent down on pre-pandemic levels, while Melbourne was down by 33 per cent.

ANZ senior economist Adelaide Timbrell said “unlike last year, lockdown spending losses have not been offset by mass spending on the transition to remote work”.

Ms Timbrell, however, said she expected to see “spikes in spending as restrictions ease”.

“Increased household savings through lockdowns, as the labour market remains resilient, will also support increased spending as access to shops return,” she said.

Private sector economists calculate that the RBA is anticipating a 1 per cent economic contraction over the three months to September – well shy of the more than 2.7 per cent fall in GDP now expected by analysts such as Deloitte’s Chris Richardson.

The minutes revealed that board members judged that a bounce in activity towards the end of this year, as vaccination rates ramp up and restrictions ease, would pave the way for “a resumption of strong growth in 2022” – underpinning RBA governor Philip Lowe’s “glass half full” outlook.

“The vaccination program would assist with containment of the virus and longer-term economic recovery,” the RBA said.

“Members judged that any additional bond purchases would have their maximum effect at that time, with only a marginal effect at present, which is when the extra support might be required.

“Given these considerations, the board reaffirmed the previously announced change in the rate of bond purchases. That said, the bond purchase program will continue to be reviewed in light of economic conditions and the health situation.”

The RBA’s “baseline scenario” assumed the Greater Sydney lockdown would extend through the September quarter, but that an acceleration in the vaccine rollout in the coming months would cut “the frequency and severity of lockdowns”.