Australia faces 'unprecedented' economic hit from coronavirus: RBA minutes

FILE PHOTO: A handful of tourists stand atop the mostly deserted steps of the Sydney Opera House, where scheduled public performances have been cancelled due to the coronavirus disease (COVID-19), in Sydney, Australia, March 18, 2020. REUTERS/Loren Elliott/File Photo

SYDNEY (Reuters) - Australia is facing an “unprecedented” economic contraction due to the coronavirus pandemic, though massive fiscal and monetary stimulus would help cushion the blow, minutes from the country’s central bank’s last meeting showed on Tuesday.

The Reserve Bank of Australia (RBA) had on May 5 left the cash rate at 0.25%, as expected, and recommitted to buying as much government debt as needed to keep three-year bond yields near 0.25%.

The minutes showed board members discussed a range of economic scenarios in their policy deliberations, with the baseline case for gross domestic product to fall by 10% in the first half and 6% for all of 2020.

“An economic contraction of such speed and magnitude would be unprecedented in the 60-year history of Australia’s quarterly national accounts,” the RBA said.

“Members noted that the nature of the contraction and the expected recovery was also unprecedented because they were driven by public health measures, rather than induced by economic or financial factors.”

Australia has not suffered a technical recession, or two consecutive quarters of contraction, since the early 1990s.

The country has been so far successful in curbing the growth of the coronavirus, helping it gradually re-open its economy although international borders are expected to remain shut for a long time to come.

Despite the earlier than expected reopening of the domestic economy, unemployment was expected to remain elevated through 2021 while inflation was seen undershooting the RBA’s 2-3% medium-term target for the next few years.

“Given this outlook, the Board would maintain its efforts to support the economy by keeping funding costs low and credit available to households and businesses,” the RBA added.

Reporting by Swati Pandey; Editing by Kim Coghill and Sam Holmes