Australia’s central bank is scrambling to prop up the country's battered economy after fresh Covid-19 outbreaks triggered a draconian lockdown in Melbourne.
The Reserve Bank of Australia (RBA) is to restart its bond-buying programme following a three-month pause, in a bid to pump money into the system and peg three-year borrowing costs at a lower level. Governor Philip Lowe said support will continue for as long as it is needed.
Officials rushed to provide stimulus after Victoria's premier Daniel Andrews declared a “state of disaster” and imposed restrictions on more than five million citizens in state capital Melbourne, including nightly curfews and fines of up to A$20,000 (£10,800) for those who repeatedly break the rules.
From Thursday, citizens across the rest of the state - which accounts for around 25pc of the Australian economy - must also work from home if they can and only leave to buy food, exercise or give essential care.
The Victoria shutdown adds to the headwinds faced by the RBA, which has already cut interest rates to an all-time low of 0.25pc. The Government has also extended its state-funded furlough scheme for six months.
Sun-Lin Ong, an economist at RBC, said: “The measures are aimed squarely at reducing the movement of people and, accordingly, Covid-19 transmission. By definition it will reduce output, employment, and hours worked.”
Australia has suffered a far weaker blow from Covid-19 than many countries after closing its borders earlier and implementing a mass testing regime. But Victoria accounts for almost two-thirds of its 19,000 cases and has suffered a fresh spike in the past few days.
The central bank is braced for unemployment as high as 10pc later this year as jobs are shed in Victoria. It forecasts a 6pc fall for the economy in 2020.
Mr Lowe said a stronger recovery is possible “if progress is made in containing the virus in the near future”, but added: “If Australia and other countries were to experience further widespread lockdowns, the recovery in both output and the labour market would be delayed.”
China’s earlier recovery has been a rare bright spot for the commodity-driven Australian economy, supporting exports. Official figures showed an improved trade balance in June as exports of metal ores rose 9pc over the month.
Rory Treadwell, of Oxford Economics, said: “The second wave of Covid-19 infections in Victoria presents some downside to exports, but it will also push out the recovery in import demand.”