We are hearing an unusual amount from the Reserve Bank this week.
On Tuesday, after its first board meeting for the year, the bank outlined plans to spend another A$100 billion it didn’t have (“created money”), to buy government bonds in order to keep interest rates down – so-called quantitative easing.
Lowe told the press club that while Australia had a long way to go with its recovery, its economy had bounced back earlier and stronger than he expected.
As is increasingly clear from our experience in Australia and the experience elsewhere around the world, the health of the population and the health of the economy are linked.
The second was spending by Australian governments amounting to 15% of GDP.
It has provided a welcome boost to incomes and jobs and helped front load the recovery by creating incentives for people to bring forward spending.
But there’s no necessary reason to assume these successes will continue.
Lowe is optimistic about household spending, while acknowledging that over the next six months household income is likely to decline as JobKeeper and the JobSeeker extension unwind.
“Normally when income falls, so does consumption,” he said, before adding that “we are not in normal times”.
The extra savings over the past six months and the bigger financial buffers can support future spending – people will have more freedom to spend as restrictions are eased and be more willing to spend as uncertainty recedes.
I’m not as sure.
Household saving ratio
- ^ A$100 billion (www.rba.gov.au)
- ^ at least another three years (theconversation.com)
- ^ parliament’s economics committee (www.aph.gov.au)
- ^ forecasts (www.rba.gov.au)
- ^ two key reasons (www.rba.gov.au)
- ^ ABS Australian National Accounts (www.abs.gov.au)
- ^ outlined this week (www.smh.com.au)
- ^ 100 million people in 77 countries (economictimes.indiatimes.com)
- ^ A little ray of sunshine as 2021 economic survey points to brighter times ahead (theconversation.com)
- ^ 80,000 (www.smh.com.au)
- ^ inflation-targeting regime (rba.gov.au)
- ^ nominal gross domestic product (www.afr.com)
- ^ Reserve Bank Governor not for turning. No rate hike until unemployment near 4.5% (theconversation.com)
- ^ only time will tell (www.rba.gov.au)
Authors: Richard Holden, Professor of Economics, UNSW