- Posted By Amit Pall
The Reserve Bank says with interest rates to remain lower for longer, all levels of government can borrow for job-creating projects.
The Reserve Bank could push interest rates closer to zero to help the economy out of the coronavirus recession as it presses all levels of government to use their upcoming budgets to borrow more money for infrastructure projects to get Australians back into work.
As payroll data suggested the jobs market was failing to pick up steam because of the lockdowns in Victoria, RBA deputy governor Guy Debelle used a keynote address to admit it could be years before the bank hit its own economic targets, even with low rates and strong government spending.
The RBA took official interest rates to a record low of 0.25 per cent in March. At the same time, it started buying government bonds to bring down interest rates on public debt while offering cheap credit to commercial banks.
Up to $200 billion is on offer to the commercial lending sector while the RBA has spent close to $60 billion on government bonds.
Dr Debelle, who warned the economy faced a gradual and uneven recovery from the recession, told an Australian Industry Group virtual conference the bank could seek to lower the structure of a range of interest rates across the economy without taking the cost of money negative.
This would also put downward pressure on the Australian dollar which, if it fell, would help the overall economy by making exports more competitive while also giving a financial advantage to domestic producers against imported goods and services.
Such low rates would also reduce the interest bill for borrowers, including governments, with Dr Debelle giving the green light to the federal and state governments to use their upcoming budgets to sink more money into infrastructure projects.
"There is not, in my judgement, a trade-off between debt and supporting the Australian economy in the current circumstance. Absent the fiscal stimulus, the economy would be significantly weaker and debt levels even higher," he said.
"This is particularly so with interest rates at their historically low levels, where the growth benefit from the fiscal stimulus will improve the debt dynamics and help service the debt in the future."
Treasurer Josh Frydenberg has said he will use the October 6 budget to announce more infrastructure funding on top of the $10 billion of projects the government has already pulled forward. He is also expected to require the states to quickly commit to any joint projects to maximise their impact on the economy.
The RBA seeks to have inflation in a 2 to 3 per cent band while its charter requires it to encourage full employment. Under-employment is at 11.2 per cent, the jobless rate is at 6.8 percent while inflation is currently negative.
Dr Debelle said it would likely take at least three years before inflation would be back within the RBA's target band and "sufficient progress" was being made towards full employment.
"In this scenario, it is highly unlikely that the cash rate will be raised over that time horizon," he said.
Victoria's lockdown to contain its coronavirus outbreak is weighing on the national jobs market, with the Australian Bureau of Statistics reporting a 0.4 per cent drop in payroll numbers in the fortnight to September 5.
Payrolls were down 0.8 per cent in Victoria while they fell by 0.3 per cent in Queensland and NSW. There were better signs elsewhere, with payroll jobs up by 0.2 per cent in Tasmania and South Australia, and by 0.1 per cent in Western Australia.
The Victorian lockdown has stalled the recovery in employment, with the total measure of payrolls back where it was on June 13. Since mid-March, the total number of payroll jobs has fallen by 580,000.
Westpac senior economist Justin Smirk said the data showed the recovery in payrolls was increasingly narrow in areas such as education, arts and recreation.
"Nationally, what is worrying is that the recovery in the COVID-hit industries, outside of education, appears to have run out of steam while there is a correction continuing to deepen in many sectors that were not directly hit by the shutdowns," he said.