Melbourne lockdown could prompt further rate cut

The Reserve Bank of Australia has held rates at 0.25% for the fifth consecutive month with the central bank possibly needing a further cut to 0.1%.

This would be because of the hit to the economy from the second Melbourne lockdown and the resulting unemployment and lack of consumer spending. The hit to the Victorian economy was expected to be around $12 billion to $14 billion.

Shane Oliver, chief economist at AMP Capital, said: “The further hit to the economy and likely additional upward pressure on unemployment is increasing pressure for more policy stimulus.

“While the RBA left monetary policy on hold at its August meeting further easing is likely ahead- it could take the form of a rate cut to 0.1% but the focus is likely to be on more quantitative easing beyond simply targeting the 3-year bond yield at 0.25%.”

He said he felt a rate rise would be three years away.

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Kerry Craig, global market strategist at J.P. Morgan Asset Management, said: “The yield curve control measures, and therefore the cash rate, will remain until inflation shifts back to the target range on a sustainable basis and the unemployment rate gets close to full employment. With the unemployment rate expected to reach around 10% this year, it will therefore be some time before we see a return to the 5% range and full employment achieved.”

Both the ASX 200 and the S&P All Ordinaries were up 1.8% on the news.