In their May Statement on Monetary Policy, the RBA has reviewed the comprehensive support package they released on 18 March, which had 4 elements: 

• Reduction in the cash rate to 25 basis points
• A target for the three-year australian government bond yield of around 0.25%
• A term funding facility for the banking system, with particular support for credit to small and medium sized businesses
• The remuneration of exchange settlement balances at the reserve bank at 10 basis points.

 
They found that so far, this package of measures has been working broadly as expected.

Looking into the future, it becomes challenging to predict the speed of economic recovery beyond the next few months. What the RBA has come up with as a solution is to work off a “baseline scenario” and from there make “plausible assumptions”.The baseline scenario for the outlook in Australia involves the relaxation of domestic activity restrictions over coming months, with most of these restrictions (stage 3) lifted by the end of the September Quarter. Restrictions on large public gatherings and international travel could remain in force for longer than this.

With this baseline scenario in mind, the RBA predicts the following: 

• Activity and employment will begin to pick up in the second half of the year
• Household consumption is expected to contract by 15% first, before slowly recovering over the next few years. Much of this decline is expected to be concentrated in services, such as travel and entertainment
• Business Investment is likely weaker than previously expected, as Mining and LNG projects in particular are delayed due to the low prices of Oil and LNG.
• There will be slower population growth due to restrictions on international and interstate travel and therefore a reduced immigration
• Unemployment will begin to decline towards the end of the year, but will remain elevated for some time as any increase in jobs will likely be offset by a reduction of job keeper payments
• Inflation will turn negative in the June Quarter, which is the first time since the nineteen sixties, and will sit around the 1.5% for the year, well below the 3% goal

 
I am confident that the RBA will continue to ensure that Australia is kept in the best possible condition while we bridge the time gap to the time when the recovery takes place. Let’s hope that restrictions are lifted on the right moments, as lifting them too fast can have very serious consequences, as we can currently already witness elsewhere on the globe.