2020.04.0104:13:00UTC+00Australia Likely To See 'Very Material' Contraction: RBA Minutes

Australia is set to undergo a very material contraction over the first half of the year, the minutes of the monetary policy meeting of Reserve Bank of Australia showed on Wednesday.

At the emergency meeting held on March 18, policymakers had reduced the key interest rate by 25 basis points to 0.25 percent and launched asset purchase programme. Policymakers also decided to start a term funding facility to support credit flow to small and medium-sized businesses.

The central bank convened an out-of-cycle meeting to consider policy responses to mitigate the economic effects of the novel coronavirus disease, or covid-19. Members strongly supported the proposed policy response as a comprehensive package to complement the fiscal response announced by governments in Australia in the preceding week or so.

Policymakers ruled out negative interest rate. "Members had no appetite for negative interest rates in Australia," the minutes said.

"While it was not possible to provide an updated set of forecasts for the economy given the fluidity of the situation, it was likely that Australia would experience a very material contraction in economic activity, which would spread across the March and June quarters and potentially longer," the bank said.

However, policymakers viewed that following containment of covid-19, the economy is expected to recover, but the timing of this was uncertain.