RBA Governor Philip Lowe reiterated in a speech that “there has been no change to the Board’s view that negative interest rates in Australia are extraordinarily unlikely”. Negative interest rates would come with costs and causes “stresses in the financial system”. They would also “encourage people to save more rather than spend more”. It’s “not a direction we need to head in”.
Meanwhile, there is evidence that Australian Dollar’s exchange rate is “broadly in line with its economic fundamentals”. Foreign exchange market intervention would have “limited effectiveness” and involve “substantial financial risks to the public balance sheet and complicate international relationships. Hence, “this too is not a direction we need to head in”.
On the economy, he said “fortunately, we have now turned the corner” in the labor market. Many firms heavily affected by the coronavirus shutdowns are now “rehiring and lifting hours” as restrictions are eased in most of Australia. However, in some sectors like construction and professional services, the pipeline of work is “drying up” as new orders have declined. Hours worked in these businesses will decline further ahead.
Lowe expected unemployment is likely to “increase further, even with the recovery underway”. Many people who lost they job will “start looking for jobs” and thus be classified as rejoining the labor force. That will push up the measured unemployment rate, like what happened with June’s figures. One of the keys to returning to a strong labor market is “restoring confidence”.
