Two women walk next to the Reserve Bank of Australia headquarters in central Sydney, Australia. Reuters/ File Photo
Australia’s central bank (CB) held its cash rate at an all-time low on Tuesday, in a widely expected decision, and said it will help buttress the economic recovery by maintaining its accommodative approach as long as the support is required.
The Reserve Bank of Australia (RBA) left rates at 0.25% at its monthly policy meeting, and sounded cautiously optimistic about the earlier-than-expected re-opening of the country’s economy, after authorities had managed to largely curb the spread of the coronavirus.
In a short post-meeting statement Governor Philip Lowe noted Australia’s A$2 trillion ($1.4 trillion) economy was in the midst of its biggest contraction since the 1930s.
“Conditions have, however, stabilised recently and the downturn has been less severe than earlier expected,” Lowe said.
“While total hours worked in Australia continued to decline in May, the decline was considerably smaller than in April and less than previously thought likely. There has also been a pick-up in retail spending in response to the decline in infections and the easing of restrictions in most of the country.”
Lowe’s relatively optimistic tone comes in the wake of a significant drop in new infections across most the country, earlier-than-expected easing of restrictions, a solid pick-up in retail spending and a hefty bump in job vacancies.
However, a recent spike in coronavirus cases in Melbourne and the closure of the New South Wales-Victorian state border have cast doubts over Australia’s recovery efforts.
The RBA did not make a mention of the recent jump in cases in its statement, only repeating that the nature and speed of the economic recovery remained “highly uncertain.”
As a result, fiscal and monetary support will likely be needed for some time, the RBA added.
The RBA has said it would scale up its government bond buying programme if further monetary stimulus was needed while reiterating the importance of fiscal response.
“In that context the governor and the RBA Board will be casting a keen eye (on) the government’s announcement on July 23rd,” said Stephen Miller, Sydney-based investment strategist at Grant Samuel Funds Management.
The government will publish a ‘mini-budget statement’ on July 23 setting out plans for fiscal stimulus measures.
“It would not be a surprise if the governor were privately urging the government to maintain the current level of support...or, at a very minimum, to phase out the measures only gradually,” Miller added.
Meanwhile, Virgin Australia Holdings Ltd bondholders have applied to the Takeovers Panel for approval to allow them to make an alternative proposal to creditors for the sale of the airline to private equity group Bain Capital, the panel said on Monday.
Singapore’s Broad Peak Investment Advisers and Hong Kong’s Tor Investment Management are also seeking interim orders allowing them to access information including the terms of the Bain transaction, the panel said in a statement.
Bain last month agreed with Virgin’s administrator Deloitte to buy Australia’s second-biggest airline for an undisclosed sum, banking on an aviation industry recovery.
Deloitte selected Bain over a bid from private equity group Cyrus Capital Partners and a debt-to-equity swap proposed by the group of unsecured bondholders owed A$2 billion ($1.39 billion).
Virgin entered voluntary administration in April owing nearly A$7 billion to creditors, including the bondholders. The Bain deal will be subject to a vote by creditors at a meeting in August.
The bondholders have said certain circumstances regarding the administrator’s sales process are unacceptable and have the effect of precluding them from presenting an alternative proposal at the meeting, the panel’s statement said.
In an affidavit filed last week, Virgin administrator Vaughan Strawbridge of Deloitte said the airline would not have enough funds to continue to trade until the August meeting in the absence of interim funding provided by Bain.
A Deloitte spokesman said on Monday the administrator believed the bondholders’ application to the Takeovers Panel was without merit and it would present information to the panel as required to refute all of the claims.
The Takeovers Panel said it had not yet decided whether to conduct proceedings on the application. Lockdown measures were reimposed in Australia’s second biggest city on Tuesday, confining Melbourne residents to their homes unless undertaking essential business for six weeks, as officials scramble to to contain a coronavirus outbreak.