RBA’s Debelle Says Fiscal, Monetary Policy To Support Economy

Reserve Bank of Australia Deputy Governor Guy Debelle said a mix of fiscal and monetary policy will help the economy to navigate through difficult period.

The coronavirus is a shock to both demand and supply, Debelle said at a business summit, on Wednesday. Monetary policy cannot influence supply side, but can strengthen demand.

Lower interest rates will provide more disposable income to the household and also works through the exchange rate which will help mitigate the effect of the virus’ impact on external demand.

The government is expected to deliver a stimulus package to withstand the negative effects of coronavirus outbreak.

Debelle said those government measures together with monetary policies will ensure the economy is well placed to bounce back quickly once the virus is contained.

In Australia, the spread of virus impacted education and tourism sectors directly in the March quarter. As service exports account for 5 percent of GDP, this will reduce the growth by 0.5 percentage points in the March quarter.

It is just too uncertain to assess the impact of the virus beyond the March quarter, he added.

Suggesting quantitative easing, Debelle said the bank would act in the government bond market as necessary.

The central bank had reduced the interest rate by 25 basis points to a new record low last week.

Elsewhere, data from the Australian Bureau of Statistics revealed that home loans increased at a faster than expected pace in January.

The value of new loan commitments for housing rose 4.6 percent in January, this was the fastest since the turning point in lending activity in mid-2019, ABS Chief Economist, Bruce Hockman, said. Economists had forecast an increase of 3 percent.

Meanwhile, building approvals plunged 15.3 percent in January from December and by 11.3 percent from last year.

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