SYDNEY • Australia's central bank yesterday said the country is facing its biggest economic contraction on record and that it is committed to supporting jobs and incomes as the government announced plans to relax coronavirus pandemic-related restrictions by July.
In its quarterly statement on monetary policy, the Reserve Bank of Australia (RBA) forecast that the A$2 trillion (S$1.84 trillion) economy would shrink by 10 per cent in the first half of the year, marking the first recession in three decades.
Australia saw a rapid spike in the number of Covid-19 cases from fewer than 100 in March to more than 6,900 now.
In a bid to contain the spread, it closed its borders and announced strict mobility and social distancing restrictions, prompting many businesses to close down and announce massive layoffs.
To support economic activity, the RBA cut interest rates to a record low 0.25 per cent in an emergency meeting in March and launched an unlimited quantitative easing programme to keep borrowing costs low for banks and consumers.
The government, which has lamented that the shutdown was costing the economy A$4 billion a week, is also splashing out billions of dollars in cash to support growth and jobs.
However, despite the aggressive monetary and fiscal support measures, the RBA expects the unemployment rate to hit 10 per cent by next month and remain around 7.5 per cent through next year.
The inflation rate is expected to turn negative in the June quarter before turning mildly positive by the year end.
The RBA said the speed and timing of the economic recovery are very uncertain beyond the next few months. Indeed, Australia's banks have deferred payments on at least A$200 billion in loans, reflecting the economic hit being felt by businesses and individuals.
Governor Philip Lowe said it was "possible to contemplate an upside scenario, where most domestic restrictions on activity are relaxed a little sooner and the economy recovers somewhat faster than in the baseline scenario".
With fewer than 20 new Covid-19 cases reported each day, Australia's Prime Minister Scott Morrison yesterday announced a three-stage plan to fully reopen the economy by July if the virus remains contained.