Statement on Monetary Policy - FEBRUARY 2021 - Reserve Bank of Australia
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Statement on
Monetary
Policy
F E B R UA RY 2 0 2 1
Statement on Monetary Policy
FEBRUARY 2021
Contents
Overview 1
1. The International Environment 5
2. Domestic Economic Conditions 21
3. Domestic Financial Conditions 31
4. Inflation 49
Box A: Consumption Patterns and Consumer Price Index
Weights 58
5. Economic Outlook 61The material in this Statement on Monetary Policy was finalised on 4 February 2021. The next Statement is due for release on 7 May 2021. The Statement is published quarterly in February, May, August and November each year. All the Statements are available at www.rba.gov.au when released. Expected release dates are advised ahead of time on the website. For copyright and disclaimer notices relating to data in the Statement, see the Bank's website. The graphs in this publication were generated using Mathematica. Statement on Monetary Policy enquiries: Secretary's Department Tel: +61 2 9551 8111 Email: rbainfo@rba.gov.au ISSN 1448–5133 (Print) ISSN 1448–5141 (Online) © Reserve Bank of Australia 2021 Apart from any use as permitted under the Copyright Act 1968, and the permissions explicitly granted below, all other rights are reserved in all materials contained in this publication. All materials contained in this publication, with the exception of any Excluded Material as defined on the RBA website, are provided under a Creative Commons Attribution 4.0 International License. The materials covered by this licence may be used, reproduced, published, communicated to the public and adapted provided that the RBA is properly attributed in the following manner: Source: Reserve Bank of Australia 2021 OR Source: RBA 2021 For the full copyright and disclaimer provisions which apply to this publication, including those provisions which relate to Excluded Material, see the RBA website.
Overview
The successful development of COVID-19 each of 2021 and 2022 as the recovery
vaccines has improved the medium-term progresses.
outlook for global growth. Vaccination programs In line with this recovery in activity, the labour
are underway in a number of countries. As these market has also performed better than
are rolled out, health-related restrictions can be expected. Employment grew strongly over the
eased and many types of activity can return to latter part of 2020, and the unemployment rate
something close to their pre-pandemic trends. declined to 6.6 per cent in December. Although
In the near term, however, some momentum in underemployment remains high, the sharp
the global economy has been lost, as infection increase during the height of the activity
rates have surged in a number of economies restrictions has mostly reversed. The
and lockdown measures have again become participation rate has already returned to the
necessary. The recovery is likely to be bumpy historic highs seen just prior to the pandemic.
and uneven, and dependent both on the health But over 900,000 Australians remain
situation and ongoing fiscal and monetary unemployed, around 220,000 more than at the
policy support. Spare capacity will remain for onset of the pandemic. Employment is likewise
some years, dampening inflationary pressures. yet to recover completely – especially full-time
The domestic economic recovery has run faster employment – and some workers are still on
than previously expected. This has been reduced hours. This shortfall is particularly
consistent with the pattern seen globally, of evident in the industries that have been most
unexpectedly fast (but partial) recoveries after affected by health-related restrictions on activity
lockdown measures were lifted, as well as and travel.
Australia’s relatively better health outcomes. The outlook for the labour market has improved
Fiscal policy has supported household and as a result of the better starting point and
business cashflows, and the Victorian lockdown growth outlook. It now appears that the
measures weighed less on economic activity unemployment rate has already peaked.
than earlier assumed. Consumption has Although the end of the JobKeeper program in
recovered faster, and dwelling and business March creates some uncertainty for the near
investment have not been as weak as had been term, over the whole forecast period employ-
anticipated. ment growth is expected to remain solid,
The Bank’s forecasts have been revised to consistent with the ongoing recovery in activity.
incorporate this stronger starting point. GDP is The unemployment rate is expected to continue
expected to have contracted by 2 per cent over declining, but will still be around 6 per cent at
2020, a smaller decline than earlier anticipated. the end of this year and 5½ per cent at the end
Growth of around 3½ per cent is expected over of next year, reaching around 5¼ per cent by
mid 2023.
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 1 1Headline inflation has been volatile since the employment relationships and supported the
pandemic started. The introduction and incomes of both households and businesses.
subsequent reversal of various temporary policy Increased social assistance payments, temporary
support measures, such as free child care, have rent relief and loan repayment deferrals have
resulted in large price movements. Working in also assisted, as did the lower debt-servicing
the opposite direction, prices of some retail costs resulting from the monetary policy
items, especially household goods, were initially measures.
boosted in response to strong demand and Unusually for a period of rising unemployment,
supply disruptions. Most of these effects have both household income and business profits
now run their course. Housing-related inflation increased. This supported the sharp recovery in
increased a little, as discounting of the prices of household consumption, after many types of
newly built homes eased in response to strong spending were constrained by health-related
demand, and some temporary rent reductions restrictions in the June quarter. How spending
expired. responds to the tapering of some fiscal support
Underlying inflation pressures remain subdued measures remains a source of uncertainty for the
and are expected to be fairly muted in the outlook.
period ahead. Spare capacity in the labour Policy support has also been instrumental in
market remains elevated, and wages growth has moderating the declines in housing and
eased further from already low rates. Many business investment. Demand for detached
employers have responded to the economic houses has been brought forward in response to
challenges of the pandemic by delaying wage various government incentives. Tax incentives
increases, imposing wage freezes and, in some have also encouraged business investment in
cases, applying temporary wage cuts. Forward machinery & equipment, though business
indicators suggest wages growth will remain investment has been soft for some time and is
soft this year. still expected to lag the broader economic
Both underlying price inflation and wages recovery. The outlook for public investment has
growth are expected to remain below 2 per cent strengthened, with several states foreshadowing
over the forecast period, out to mid 2023. a considerable increase in expenditure in their
Trimmed mean inflation is expected to be recent budgets.
1¼ per cent over 2021 and 1½ per cent over Experience overseas has also highlighted the
2022. For inflation to be sustainably within the role of fiscal and monetary policy support, both
Bank’s target range of 2–3 per cent, a period of during upsurges in infection rates and once the
labour market tightness that leads to faster health situation improves. Governments in
wages growth is needed. However, even the several countries have announced additional
latest, upgraded, forecasts for economic activity fiscal support packages in recent months, in
and employment still imply a degree of spare response to renewed virus outbreaks or to
capacity and slow wages growth over coming support the economic recovery. Several central
years. banks have recently increased the size and/or
The bounce-back in the Australian economy extended the timeframe of their asset purchase
would not have been possible without the programs. Some have also introduced or
successful public health outcomes. Even so, the enhanced lending facilities to support the flow
speed of the recovery has also underlined the of credit to households and businesses.
importance of timely and substantial policy
support. The JobKeeper program preserved
2 R E S E R V E B A N K O F AU S T R A L I AThe COVID-19 pandemic has induced rate remains just below 7 per cent for most of
considerable shifts in the pattern of demand, 2021 and declines only gradually thereafter.
most notably away from services, which have The upside scenario assumes a sequence of
been most affected by activity restrictions, positive health outcomes that enable a faster
towards goods. This has supported a rapid easing of restrictions on activity and boost
recovery in global trade and industrial confidence and thus spending. The unemploy-
production. The export sectors in China and ment rate would fall more quickly under this
some other Asian economies have therefore scenario, falling below 5 per cent by the end of
expanded strongly, particularly for producers of next year. Inflation would also rise a little faster,
semiconductors and household goods. These but would still be below 2 per cent by end of
economies have also benefited from relatively the forecast period in mid 2023.
good control over the virus, so their domestic
Monetary policy has helped support the
economic recoveries are also generally more
economy by ensuring that financial conditions
advanced than elsewhere.
remain highly accommodative. The Bank
The strong rebound in industrial demand has announced another package of monetary policy
supported an increase in commodity prices in measures in November. This included lower
recent months. Strong growth in Chinese steel rates for the cash rate target, bond yield target,
production, both for industrial uses and Term Funding Facility and remuneration on
domestic construction, has boosted iron ore exchange settlement balances. It also included a
prices and thus Australia’s terms of trade. It has program to purchase $100 billion of govern-
also put upward pressure on the value of the ment bonds over a period of about 6 months.
Australian dollar, which is in the upper end of
Last year’s monetary policy package is working
the range of recent years.
broadly as expected and is supporting the
As in previous Statements, the forecasts are economy. The changes have contributed to a
presented in the form of 3 scenarios, this time further easing in financial conditions and helped
representing different outcomes related to the ensure that the banking system is able to
spread of the virus and the rollout of vaccines. provide the credit that is needed for the
The degree of uncertainty on this dimension has recovery. Short-term interest rates have declined
narrowed as the Australian public health system further to historical lows; together with the
has prevented several small outbreaks from reduced interest rate on the Term Funding
spreading more widely. The baseline forecast Facility, this has lowered bank funding costs and
assumes that no further large outbreaks of flowed through to even lower borrowing rates
COVID-19 occur in Australia, though there could for households and businesses, and thus
be a few small outbreaks on the scale seen over stronger cash flows. With 3 months’ experience,
the past couple of months. Domestic activity the bond purchase program is working as
restrictions are assumed to ease over the course intended, and government bond markets
of this year. Australia’s international borders are continue to function well. While the brighter
assumed to remain closed until at least the end global outlook has lifted long-dated bond yields
of the year. globally, Australian long-term government bond
In the downside scenario, further large yields are about 30 basis points lower because of
outbreaks require broad activity restrictions to the program than they otherwise would have
be reimposed, though not the extended been. The exchange rate is also lower than it
lockdowns contemplated in previous downside otherwise would have been.
scenarios. In this scenario, the unemployment
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 1 3Accommodative financial conditions have
supported balance sheets and lifted asset prices,
including housing prices. New lending to
owner-occupiers has picked up noticeably in
recent months, and growth in housing credit to
owner-occupiers has also increased. Growth in
investor credit and business credit is weak. Firms
have been raising additional funds in debt and
equity markets, and some firms have benefited
from higher cash flows and retained earnings.
At its February meeting, the Reserve Bank Board
decided to maintain the targets of 10 basis
points for the cash rate and the yield on 3-year
Australian Government bonds, as well as the
parameters of the Term Funding Facility. The
Board remains committed to do what it can to
support the economy through the recovery, by
maintaining highly supportive monetary
conditions until its goals are achieved, which is
still some way off. In light of the outlook and the
international context, the Board decided to
purchase an additional $100 billion of bonds
issued by the Australian Government and states
and territories when the current bond purchase
program is completed in mid April. These
additional purchases will be at the current rate
of $5 billion a week.
The Board will not increase the cash rate until
actual inflation is sustainably within the 2 to
3 per cent target range. For this to occur, wages
growth will have to be materially higher than it
is currently. This will require significant gains in
employment and a return to a tight labour
market. The Board does not expect these
conditions to be met until 2024 at the earliest.
4 R E S E R V E B A N K O F AU S T R A L I A1. The International Environment
Following a strong rebound in global activity in at historically low levels, although they have
the September quarter, the economic recovery risen in a number of countries, reflecting expec-
lost a little momentum late last year following a tations of further fiscal stimulus and the
resurgence of COVID-19 infections and a improvement in the outlook.
significant tightening in activity restrictions in
some economies. But in China and a small The resurgence in infections in late
number of other economies where infection 2020 has slowed the global recovery,
numbers have remained low, economic activity although the rollout of vaccinations is
has rebounded strongly to pre-pandemic levels. supporting the outlook
The unprecedented fiscal and monetary policy The resurgence in COVID-19 cases since late last
response continues to support activity in many year has affected many economies and a
economies, including in Australia. number have seen hospitalisations surpass their
The approval of a number of effective vaccines earlier peaks (Graph 1.1). Containment measures
in recent months raises the prospect of a more have been tightened and extended in many
rapid improvement in health outcomes, but it locations. In parts of Western Europe, lockdown
will take some time for vaccines to be rolled out measures have become almost as restrictive as
on a sufficient scale to contain the virus. While they were during the initial wave of the
global growth forecasts for the coming year pandemic and are likely to remain in place for
have increased a little relative to the November much of the Northern Hemisphere winter. The
Statement on Monetary Policy, the significant rollout of vaccines should start to reduce the
disruption to the global economy from the effects of the virus, but just how quickly this
pandemic, and consequent substantial spare occurs will depend on the speed of production
productive capacity, is likely to keep inflation low and distribution. Access to vaccines is currently
for some time. very limited in most emerging market
Monetary policy settings remain very economies.
accommodative globally and central banks have The resurgence in infections and the tightening
indicated that they will remain so for some time. of containment measures dampened economic
Broader financial conditions continue to support activity around the turn of the year (Graph 1.2).
economic growth. Credit risk premiums have Population mobility has remained well below
narrowed, equity prices have rallied and pre-pandemic levels (Graph 1.3). Nevertheless,
investment flows to emerging markets have the economic impact of the resurgence of
increased. These developments reflect positive infections and associated lockdowns is expected
sentiment around the ongoing rollout of to be smaller than during the initial outbreak.
vaccines, new fiscal stimulus measures, as well as There are various reasons for this: current
expectations of ongoing monetary policy lockdowns are generally more targeted;
accommodation. Sovereign bond yields remain businesses and households have adapted to
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 1 5carrying on economic activity during lockdown Global trade and production have
conditions; and personal protective equipment continued to recover
(PPE) is more readily available. Consumer The resilience in goods demand supported the
spending will also be supported by ongoing recovery in global goods trade and industrial
fiscal and monetary policy measures and the production during the second part of 2020
prospect of the pandemic moving into a less (Graph 1.4). This partly reflects consumers
disruptive phase as mass vaccinations roll out. To substituting towards goods as spending on
date, reported GDP outcomes for the December consumer services has fallen. Demand for
quarter have been stronger than expected in electronics has been especially strong, driven by
many economies. remote working. This has boosted exports from
China and other east Asian economies, as the
region is a significant producer of semi-
conductors and other electronics. A shortage of
shipping capacity from Asia has lengthened
supplier delivery times to other regions and the
Graph 1.1 broader recovery in goods consumption has
COVID-19 Hospitalisations pushed up producer input prices globally.
Per million of population
no no
Italy Global trade arrangements continue
600 600
to evolve
France Some of the political tensions of recent years
400 400
Spain that affected global trade are in a period of
United Kingdom
United States
transition. The European Union and the United
200 200
Canada Kingdom reached a trade agreement in late
December, which should limit large-scale
0 0
F M A M J J A S O N D J disruptions to a key trading relationship
2020 2021
Source: Our World in Data
following Brexit. Meanwhile, it is yet to be seen
how the US–China trade relationship will evolve
under the new US Administration following
Graph 1.2
GDP in 2020
% % Graph 1.3
5 5 Population Mobility
Deviation from January 2020, smoothed
0 0 % %
Australia High-income east Asia
-5 -5 0 0
-20 -20
-10 -10 Canada Japan
-40 -40
-15 -15 Middle-income east Asia
-60 -60
New Zealand
-20 -20 % %
Peak-to-trough
Recovery up to the September quarter
Germany
-25 -25 0 0
Change to the December quarter* United States
-20 -20
-30 -30 France
Taiwan
Vietnam
Norway
South Korea
Hong Kong
Australia
Indonesia
Sweden
Japan
China
Netherlands
Germany
Thailand
New Zealand
Canada
Singapore
Euro area
Italy
Malaysia
France
Philippines
United States
United Kingdom
Spain
India
-40 -40
Spain United Kingdom
-60 -60
Italy
-80 -80
FMAM J J A SOND J FMAM J J A SOND J
2020 2021 2020 2021
* Forecasts used where December quarter GDP has not yet been Sources: Google LLC (2021), ‘Google COVID-19 Community Mobility
reported Reports’, available at https://www.google.com/covid19/mobility/
Sources: ABS; CEIC Data; Consensus Economics; RBA; Refinitiv viewed on 4 February 2021; RBA
6 R E S E R V E B A N K O F AU S T R A L I Ayears of significant trade tensions. China appears ability to avoid large-scale outbreaks of the virus
unlikely to have met their purchase since early 2020 and to effectively target
commitments under the ‘Phase One’ trade deal economic policy support measures. The early
with the United States; as of November, China stages of the recovery were driven by
had only met a little over half of the 2020 target. construction-related investment and
production, partly because fiscal spending was
Demand for manufactured goods has largely directed towards infrastructure projects.
supported east Asia’s recovery … Consistent with this, production of construction-
The broad-based strength in east Asian goods related products, such as steel, rose notably over
exports has supported growth in the region 2020 (Graph 1.7). Fixed asset investment also
(Graph 1.5). Demand from China has been continued to recover in the December quarter,
resilient and exports to the major advanced albeit moderating from the very high growth
economies surpassed pre-pandemic levels by rates seen earlier in the year.
November 2020. However, the recovery in Consumption continued to recover in the
domestic spending has been slowed by a December quarter and consumption patterns
resurgence in COVID-19 infections and tighter
containment measures across the region.
Population mobility associated with retail and Graph 1.5
entertainment activity has declined in most of East Asia – Exports
US$b By type* index
By destination
these economies since late 2020 (Graph 1.6). 2019 average = 100
Major advanced
economies Semi-conductors
60 120
… while domestic activity has
China
recovered to above pre-pandemic levels 45 100
in China
Other
Intra-regional
After contracting sharply in early 2020, the 30 80
Chinese economy has largely recovered, Other
growing by 6.5 per cent in 2020 in year-ended 15
2016 2018 2020 2016 2018 2020
60
terms. Activity is now well above pre-pandemic * Includes South Korea and Taiwan
Sources: CEIC Data; RBA; Refinitiv
levels in most parts of the economy. This
economic resilience has stemmed from China’s
Graph 1.6
East Asia – Retail and Recreation Mobility*
Graph 1.4 Deviations from January 2020 baseline, smoothed
% %
Trade, Production and Consumption South Korea
0 0
Year-ended growth
% % -25 -25
World Major advanced economies*
Hong Kong
-50 -50
Thailand Malaysia
15 15 -75 -75
Goods consumption % %
Indonesia Taiwan
0 0
0 0
-25 -25
Industrial Singapore
production -50 -50
Philippines
-15 -15 -75 -75
Vietnam
Trade
Services consumption -100 -100
FMAM J J A SOND J FMAM J J A SOND J
2020 2021 2020 2021
-30 -30 * Based on GPS readings around retail & recreation locations
2008 2014 2020 2008 2014 2020
Sources: Google LLC (2021), ‘Google COVID-19 Community Mobility
* Includes the United States, the United Kingdom and Japan Reports’, available at https://www.google.com/covid19/mobility/
Sources: CEIC Data; RBA; Refinitiv viewed on 4 February 2021; RBA
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 1 7have begun to normalise. Household consump- accommodative monetary policy stance as it
tion of essential items, such as food and rental seeks to balance assistance for China’s economic
services, remained relatively stable over 2020, recovery with limiting the build-up of risks in the
while consumption of discretionary services, financial system.
such as eating out and cultural & entertainment Chinese policymakers have overseen some
services, only reached pre-pandemic levels in tightening of conditions in financial markets
the December quarter. Consumption of these alongside the economic recovery so far, while
services could decline again if restrictions are maintaining other stimulatory policies. In
tightened materially in response to the small particular, bank lending rates and reserve
resurgence of COVID-19 cases in north-east requirement ratios (RRRs) remain low, and a raft
China. of other measures aimed at encouraging the
Chinese export growth picked up over 2020 and flow of credit to small and private businesses
contributed significantly to overall growth remain in place (Graph 1.9). These measures saw
(Graph 1.8). Among the drivers of this growth in growth in total social financing (TSF) increase
exports has been strong global demand for over 2020, consistent with the stated goal of
goods and the swift rebound in industrial authorities to support the recovery with notably
production in China. Earlier in 2020 demand was higher credit growth (Graph 1.10). The faster
strongest for PPE, medical supplies and pace of TSF growth over 2020 was also partly
computers; more recently the growth has been driven by strong issuance of government bonds,
more broad based. Imports also picked up in the a high share of which was related to infras-
second half of 2020, but by a smaller margin tructure activity. This was partly offset by a
than exports. reduction in lending by the more opaque
channels of the financial system, following
Chinese financial conditions remain actions by regulators.
accommodative but authorities are alert Though corporate financing conditions remain
to financial risks accommodative in general, there was a
Financial conditions in China continue to tightening in the corporate bond market around
support growth and employment. The People’s the turn of the year. Corporate bond spreads
Bank of China (PBC) is maintaining a moderately rose and issuance became more difficult
following defaults in November by several
Graph 1.7
China – Activity Indicators* Graph 1.8
December 2019 = 100
index Industrial production Fixed asset investment index China – GDP Growth
Year-ended with contributions
% %
120 120
Steel Infrastructure
products Real estate 5 5
100 100
Crude steel
Construction
materials
80 80
0 0
Construction
equipment Manufacturing
60 60
-5 -5
GDP growth Investment
40 40 Consumption Net exports
D M J S D D M J S D
2019 2020 2019 2020 -10 -10
* Seasonally adjusted by the RBA 2015 2016 2017 2018 2019 2020
Sources: CEIC Data; RBA Sources: CEIC Data; RBA
8 R E S E R V E B A N K O F AU S T R A L I Aenterprises owned by local governments, which in place for some time. TSF growth is expected
have historically benefited from substantial to moderate over 2021 as authorities aim to
government support (Graph 1.11). Authorities keep overall debt levels in the economy stable
have warned that more defaults will occur in the relative to GDP.
future to help ensure that markets price risks
appropriately. The renminbi has appreciated further
Authorities have affirmed that reducing risk in The renminbi has appreciated since mid last year
the financial system remains a key policy reflecting the recovery in Chinese economic
objective and that it will be necessary to tighten activity and higher interest rates relative to those
monetary conditions further at some point of advanced economies, which have
during the recovery. However, authorities have encouraged bond and equity inflows. This has
also emphasised that any reduction in policy occurred alongside a broad-based depreciation
accommodation will be gradual. In particular, in the US dollar, and the renminbi has
policymakers have indicated that targeted appreciated by around 11 per cent against the
measures supporting certain segments of the US dollar to its highest level since 2018
economy such as smaller firms are likely to stay (Graph 1.12).
Capital inflows have also been associated with
Graph 1.9 China’s inclusion in some global fixed income
China – Financial Conditions benchmarks last year and gradual
% %
Bond and
money markets
Lending rates RRRs improvements in foreign access to securities
7-day
General bank Large markets. Foreign holdings of renminbi-
lending rate institutions
repo rate*
4 15 denominated assets have increased further,
although foreign participation remains low by
Average
Medium
mortgage rate
institutions
international standards (Graph 1.13). Since the
2 10
beginning of the year, authorities have eased
5-year government Small
bond yield Medium-term institutions
restrictions on Chinese cross-border lending and
lending facility
0 5 tightened restrictions for cross-border
2017 2021 2017 2021 2017 2021
* 14-day average borrowing, while quotas for portfolio investment
Sources: Bloomberg; CEIC data; RBA
abroad have been increased. These adjustments
Graph 1.10 Graph 1.11
China – Total Social Financing Corporate Bond Spreads*
Year-ended growth
By ownership of issuer
% % bps bps
30 30
300 300
Private
20 20
200 200
Total* Local SOE
10 10
Total excluding 100 100
government bonds
Central SOE
0 0
2008 2011 2014 2017 2020 0 0
M J S D M J S D M
* Measure targeted by authorities; government bond issuance includes 2019 2020 2021
refinancing of debts previously included elsewhere in TSF; RBA
estimates prior to 2016 * Average spread across all maturities longer than 6 months
Sources: CEIC Data; RBA Sources: RBA; Wind Information
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 1 9have been consistent with the stated goals of Nonetheless, overall economic activity is still
promoting a two-way opening of the capital below pre-pandemic levels, particularly in parts
account and having a more flexible, market- of the services sector.
determined exchange rate. To date, concerns around fiscal space and high
inflation have limited the amount of fiscal and
India’s economic recovery has gained monetary support provided by the Indian
momentum authorities. However, the recent Indian budget
In India, the pace of economic recovery has suggests fiscal expenditure will increase this year
strengthened alongside a decline in COVID-19 and further declines in headline inflation, as
cases and a further relaxation of restrictions. currently forecast, could provide scope for
Following severe disruptions during India’s initial further monetary policy easing if required.
lockdown, industrial production has continued
to recover and steel production is now around The recovery in industrial demand has
pre-pandemic levels. Steel demand is led to a sharp increase in
supporting an increase in demand for Australian commodity prices
coking coal exports to India (Graph 1.14; see The ongoing recovery in industrial production in
‘Domestic Economic Conditions’ chapter). China and parts of Asia is supporting the price of
commodities, including some key exports for
Australia. Iron ore, coal and oil-related
Graph 1.12 commodity prices have all increased sharply
Chinese Renminbi and Interest Rate Differential
index Yuan per US$ yuan over the past 3 months, and most other
(RHS, inverted)
104 6.4 commodity prices are also higher. That said,
100 6.8 momentum in some commodity prices has
96
Trade-weighted index*
7.2 moderated more recently.
(LHS)
bps bps
China-US interest rate differential** The benchmark iron ore price has increased by
300 300
around 30 per cent since the previous Statement
200 200
(Table 1.1). Although the price has eased a little
100 100
since late January, it remains around its highest
0 0
2018 2019 2020 2021 level since 2013 (Graph 1.15). This has reflected
* Indexed to 1 January 2018=100
** 5-year government bond yields
Sources: Bloomberg; Chinese Foreign Exchange Trade System
Graph 1.14
India – Steel Production
Graph 1.13 and Coking Coal Imports*
Quarterly
Foreign Holdings of RMB Assets Mt Mt
CNYtr CNYtr Coking coal imports
Equity Bond Loan Deposit from Australia
(RHS)
25 11
6 6
20 8
4 4
15 5
2 2 Steel production
(LHS)
10 2
0 0 2008 2011 2014 2017 2020
2014 2015 2016 2017 2018 2019 2020 * Seasonally adjusted by the RBA
Source: CEIC Sources: ABS; CEIC Data; RBA
10 R E S E R V E B A N K O F AU S T R A L I A(a)
Table 1.1: Commodity Price Changes
Per cent
Since previous Statement Over the past year
Bulk commodities 36 58
– Iron ore 31 83
– Coking coal 45 1
– Thermal coal 58 35
Rural 9 10
Base metals 6 18
Gold –7 12
Brent crude oil(b) 46 7
RBA ICP 16 20
– Using spot prices for bulk commodities 23 27
(a) Prices from the RBA Index of Commodity Prices (ICP); bulk commodity prices are spot prices
(b) In US dollars
Sources: Bloomberg; IHS Markit; RBA
ongoing strength in Chinese steel production stronger demand outside China and previous
and supply issues, including a weaker outlook disruptions to Australian supply arising from
for Brazilian production and, to a lesser extent, weather-related damage to port infrastructure.
scheduled maintenance and weather-related Coking coal prices have also increased sharply in
disruptions in Australian supply. The surge in recent weeks but remain at a significant
prices in December prompted China’s Dalian discount relative to domestic Chinese prices,
Commodity Exchange to tighten limits on partly reflecting uncertainty surrounding
trading, reportedly to address speculative Chinese demand for Australian coal. Higher
activity in the iron ore futures market. demand for coking coal elsewhere, particularly
The Newcastle thermal coal spot price has from India, has provided support to prices.
increased sharply since late 2020 because of The price of Brent crude oil has increased by
around 45 per cent since the previous Statement
and is now back around levels observed prior to
Graph 1.15
the onset of the pandemic (Graph 1.16). The
Bulk Commodity Prices
USD, 2015 average = 100 price received by Australian Liquefied Natural
index index
Gas (LNG) exporters is linked to oil prices with a
Coking coal Iron ore
lag and will therefore increase over the next
300 300
couple of quarters. The Asian LNG spot price
spiked to a record level in mid January following
200 200
strong Northern Hemisphere winter demand
and concerns of a global supply shortfall. The
100 100
Thermal coal
price has since decreased, amid an easing in
peak demand and greater availability of spot
0 0
2011 2013 2015 2017 2019 2021 cargoes.
Sources: Bloomberg; IHS Markit; RBA
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 1 11There is significant spare capacity in Spare capacity in labour markets, evident in
advanced economies, keeping broad measures of underutilisation, will weigh
inflation low on wages growth and underlying inflation for
Economic activity at the end of 2020 remained some time. While inflation in the prices of goods
below pre-pandemic levels across advanced has picked up in most advanced economies
economies. Significant spare capacity remains in since June, reflecting both supply disruptions
labour markets in advanced economies despite and increased demand, this has been offset by
the rebound in global activity in the September disinflation in services prices; services inflation
quarter. The extent of this shortfall has varied has been volatile due to policy changes to
across economies, depending on health support spending in the sector, including
outcomes and the stringency of restrictions, the temporary consumption tax reductions. In the
size of the services sector (which has faced case of headline inflation, the increase in oil
significant headwinds throughout the prices since November will provide a boost, but
pandemic) and the scale of fiscal and monetary the effects will be offset in part by the significant
support. easing in food inflation as production
disruptions have subsided.
Wage subsidy programs have operated in many
advanced economies throughout the pandemic, Inflation remains low. It is expected to pick up
with the United States a key exception. These towards central bank targets, but only very
subsidies have supported the retention of gradually as the global recovery gains traction
workers and kept many businesses afloat. In line and spare capacity in labour markets is
with the intent of these programs, the labour eventually absorbed. Market-based and
market adjustment in these economies has economists’ inflation expectations have
occurred largely through a reduction in average increased (Graph 1.18). Prospects of significantly
hours worked rather than a fall in employment more expansionary US fiscal policy in recent
(Graph 1.17). This has resulted in a smaller months and very accommodative monetary
increase in unemployment rates than otherwise. policy have also supported the increase in
The number of workers supported by wage market-based inflation expectations.
subsidies had significantly fallen by mid last year,
but reliance on these programs has increased
again in some economies that have tightened
containment measures.
Graph 1.17
Cumulative Change in Hours Worked
Contributions since December 2019
Graph 1.16 % United States Canada Australia %
0 0
Oil and LNG Prices
US$/b US$/ -10 -10
Brent oil MMBtu
(LHS)
125 25 -20 -20
Japan and Korea LNG spot
(RHS) %
100 20 Japan Italy United Kingdom* %
0 0
75 15
-10 -10
50 10 -20 -20
-30 -30
25 5 M J S D M J S D M J S D
2020 2020 2020
0 0 Employment Average hours worked Total hours worked
2011 2013 2015 2017 2019 2021 * United Kingdom data are derived from the weekly Labour Force Survey
Sources: Bloomberg; RBA; Refinitiv Sources: CEIC Data; Office for National Statistics; RBA; Refinitiv
12 R E S E R V E B A N K O F AU S T R A L I AFiscal policy support has been extended Central banks in advanced economies
Fiscal policy has provided critical support to continue to provide significant
household and business incomes throughout monetary policy support
the pandemic, particularly in advanced Monetary policy settings in advanced
economies. This support is likely to be required economies remain highly accommodative and
for some time as a result of the latest upswing in are expected to remain so for some time given
COVID-19 infections, the recent period of significant spare capacity and subdued outlooks
intensive lockdowns and the significant amount for inflation. Indeed, in recent months, several
of spare capacity remaining in many economies. central banks have extended the timeframe for
European governments have increased fiscal which existing monetary stimulus will be in
support measures, mainly through extended place. The European Central Bank (ECB), Bank of
wage subsidies and business transfers. The US England (BoE), Bank of Japan (BoJ) and Swedish
authorities approved a further large expansion Riksbank recently expanded the size of their
of fiscal policy (4 per cent of GDP) in late 2020, asset purchase programs and extended their
which extended unemployment benefits, horizon until the end of 2021 or later (Table 1.2).
reintroduced forgivable loans to businesses that The Chair of the US Federal Reserve (Fed)
maintain employment levels and provided indicated that, consistent with the Fed’s updated
another round of direct transfers to households forward guidance, any tapering of Fed asset
(Graph 1.19). The prospects of a further fiscal purchases was unlikely in the near term, and
expansion have increased significantly after the would be gradual and signalled well ahead of
Democrats secured a majority in both chambers time.
of the United States Congress. Many advanced A number of central banks have also made
economies have announced substantial funding changes to their lending facilities, or launched
for their mass vaccination programs. And some new facilities, to encourage the flow of credit to
economies, including Japan, the European the real economy (Graph 1.20). The ECB
Union and Canada, have announced very extended by a year the period during which
sizeable fiscal policy measures for the recovery banks will receive a discounted interest rate on
phase that emphasise ‘green’ and digital borrowings under its term funding scheme and
investment.
Graph 1.19
Graph 1.18 Direct Fiscal Response*
Per cent of 2019 GDP
Inflation and Inflation Expectations % %
Year-ended Canada
% % New Zealand
United States* Euro area Japan
15 15
Market
expectations** Economists’ United Japan
expectations*** States
2 2 10 10
Core High-income
Euro area east Asia**
5 5
0 0 United
Kingdom
0 0
F M A M J J A S O N D J
2020 2021
-2 -2
2017 2021 2017 2021 2017 2021 * Includes state government stimulus for Canada and Germany;
excludes loan guarantees and unallocated funds; based on published
* Personal consumption expenditure inflation estimates
** Implied from 5-year, 5-year forward inflation swaps ** GDP-weighted average of Hong Kong, Singapore, South Korea
*** Consensus; average of 4- and 5-years ahead and Taiwan
Sources: Bloomberg; Consensus Economics; RBA; Refinitiv Sources: IMF; national sources; RBA; Refinitiv; Reuters
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 1 13(a)
Table 1.2: Central Bank Government Bond Purchase Programs
Programs announced since 3 March 2020
End date Purchase target Purchases to date
Nominal Per cent of GDP
Fed Open-ended Unlimited US$2.3tn 11
ECB March 2022 €1850bn(b) €982.7bn 8
BoJ Open-ended Unlimited (yield curve control) ¥44.3tn 8
BoE End 2021 £440bn £313.8bn 15
BoC Open-ended Unlimited C$294.2bn 13
RBNZ June 2022 NZ$100bn NZ$45.8bn 13
Riksbank End 2021 SEK700bn(b) SEK123.3bn 3
RBA Open-ended Unlimited (3-year yield target) A$72.3bn 4
April 2021 A$100bn A$55bn 3
September 2021 A$100bn A$0bn 0
(a) Includes state and local government debt. Includes purchases to alleviate market dysfunction and purchases made as part of pre-
announced bond purchase programs; RBA purchases to alleviate market dysfunction are included in 3-year yield target purchases
(b) Includes private sector asset purchases
increased the borrowing limit. The BoE extended reduced its primary market purchases of
the duration of its term funding scheme by Treasury Bills.
6 months to October 2021, while the BoJ Central banks continue to signal that policy rates
extended the duration of its lending facilities will remain at very low levels until there is
and removed the upper limit on loans provided sustained progress towards employment and
to each bank for some facilities. Also, the Reserve inflation goals. In the United States, most
Bank of New Zealand (RBNZ) introduced a members of the Federal Open Market
Funding for Lending Programme (FLP). The FLP Committee (FOMC) expect the policy rate to
will provide funding for 3-year terms at a floating remain unchanged until at least 2023, consistent
interest rate equal to the prevailing policy rate, with forward guidance that the policy rate will
with the borrowing limit tied to a bank’s volume
of lending to the non-financial private sector.
Graph 1.20
While broad-based stimulus is expected to
Term Funding Schemes
continue for some time, central banks have Per cent of GDP
% %
continued to scale back measures aimed at Usage
Maximum size
alleviating dysfunction or supporting the flow of 24 24
credit in particular markets as conditions in
18 18
these markets have improved. A number of Fed
emergency lending facilities were closed in 12 12
December (Graph 1.21). The ECB reduced its
holdings of commercial paper and has lowered 6 6
the pace of private sector asset purchases. The
0 0
Fed ECB BoJ* BoE Riksbank RBA** RBNZ
Bank of Canada (BoC) discontinued its purchases
* Total usage and size of two lending facilities introduced in 2020
of provincial money market securities, and ** Total size includes current initial and additional allowances
Sources: Central banks; RBA; Refinitiv
14 R E S E R V E B A N K O F AU S T R A L I Anot be increased until the labour market has frameworks and tools in the coming year. An
reached maximum employment and inflation independent review of the BoE’s approach to
has risen to 2 per cent and is on track to quantitative easing (QE) found that the
moderately exceed 2 per cent for some time. In programs had been delivered effectively, but
Europe and Japan, rates are expected to remain recommended more work to improve technical
at current or lower levels for the foreseeable understanding and build public understanding
future. In the United Kingdom market pricing and trust in QE as a monetary policy tool.
suggests that the BoE will lower the policy rate Meanwhile, the BoJ is reviewing the
by 10 basis points to zero per cent by end 2021 sustainability of its policy measures given that it
(Graph 1.22). In New Zealand, market has accumulated a large share of equity
participants expect the policy rate to remain exchange traded funds and government bonds
unchanged in 2021. on issue. The ECB expects to conclude its
Some central banks will undertake or announce monetary policy strategy review in the second
the results of reviews of monetary policy half of the year.
Government bond yields have
Graph 1.21 increased, but remain low
US Federal Reserve Emergency Facilities
US$bn
Facilities expiring Facilities expiring in 2021
US$bn Long-term government bond yields have
31 December 2020
increased in most advanced economies since
750 750 the end of November (Graph 1.23). This is partly
Usage
Treasury backstop because the economic outlook has improved,
Size
500 500 related to the rollout of COVID-19 vaccines,
although this has been tempered by rising
250 250 COVID-19 cases and new containment measures
in some economies. Expectations of new fiscal
0 0 stimulus measures, particularly in the United
Term asset-backed
Municipal debt
lending program
Corporate debt
Primary dealer
Money market mutual
Commercial paper
Paycheck protection
program liquidity
purchases
purchases
securities loan
Main street
States, have also contributed to higher govern-
credit*
fund liquidity*
funding*
ment bond yields.
The recent rise in government bond yields has
* No upper limit mostly been reflected in an increase in inflation
Sources: Refinitiv; US Federal Reserve
Graph 1.23
Graph 1.22
10-year Government Bond Yields
Policy Rate Expectations % %
% %
2 2
NZ 2 2
1 US 1
Japan
0 0 Australia
1 1
Euro area
% % US
UK
2 2
Canada Australia 0 0
1 1 Germany
UK
0 0
-1 -1
-1 -1 M J S D M J S D M
2017 2019 2021 2017 2019 2021 2019 2020 2021
Sources: Bloomberg; RBA Source: Bloomberg
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 1 15compensation, whereas real yields have containment measures in a number of major
declined or remained stable at low levels economies.
(Graph 1.24). This is consistent with expectations Corporate bond yields and credit spreads have
that policy rates will not be raised until there is a declined further in recent months (Graph 1.27).
substantial and sustained increase in inflation, in Borrowing costs are currently around record
line with strong forward guidance from central lows in the United States and Europe, and
banks, most notably the Fed. issuance conditions remain favourable for both
Sovereign debt issuance is expected to remain investment grade and sub-investment grade
elevated to fund ongoing fiscal deficits. Most borrowers.
major central banks have purchased (in Equity prices have increased significantly over
secondary markets) the equivalent of more than recent months. Bank share prices have
half of net government debt issuance since the outperformed other sectors, especially in the
start of the pandemic, which has contributed to
keeping bond yields low and stable (Graph 1.25;
Graph 1.26). In most cases, central banks have Graph 1.25
indicated that they expect to continue Sovereign Debt Issuance
and Central Bank Purchases
purchasing at around the same pace until at Cumulative since 1 March 2020, per cent of September 2020 GDP
% US UK %
least the end of 2021, which is likely to comprise 24 24
a significant share of new issuance this year. Sovereign debt
16 16
issuance*
8 8
Central bank
0 0
Corporate funding conditions in purchases*
% Euro area Japan %
advanced economies are highly 24 24
accommodative 16 Forecast 16
8 8
Corporate funding conditions have been
0 0
supported by expectations that widespread -8 -8
MAM J J A S ON D J FMMAM J J A S ON D J FM
vaccination will allow economic activity to 2020 2021 2020 2021
*
normalise in the second half of 2021, alongside Net of maturities
Sources: BoE; BoJ; ECB; Fed; National Debt Management Entities;
Refinitiv; UBS
ongoing fiscal and monetary support.
Conditions have improved further despite the
recent resurgence in infections and
Graph 1.26
Sovereign Debt Issuance
and Central Bank Purchases
Graph 1.24 Cumulative since 1 March 2020, per cent of September 2020 GDP
% Australia NZ %
10-year Government Bonds 24 24
% % Forecast
Real Inflation compensation Sovereign debt
16 16
issuance*
2 2 8 8
0 0
1 1 % %
Canada Sweden
24 24
Japan
0 0 16 16
8 8
US
Central bank
-1 -1 0 0
purchases*
-8 -8
Germany MAM J J A S ON D J FMMAM J J A S ON D J FM
-2 -2 2020 2021 2020 2021
J FMAM J J A SOND J FM J FMAM J J A SOND J FM * Net of maturities
2020 2021 2020 2021
Sources: BoC; National Debt Management Entities; RBA; RBNZ;
Sources: Bloomberg; RBA Refinitiv; Riksbank
16 R E S E R V E B A N K O F AU S T R A L I AUnited States, amid a substantial recovery in Conditions in short-term US dollar funding
profits for the December quarter (Graph 1.28). markets remain accommodative. The cost of
The improved economic outlook is expected to borrowing US dollars in foreign exchange swap
support bank profits via lower loan losses (and markets increased towards the end of 2020,
loss provisioning), a steeper yield curve and although year-end funding pressures were less
potentially greater lending activity. Bank share acute than in some previous years. These
prices have also benefited from an easing in funding pressures can emerge because
restrictions on share buybacks in a number of regulatory factors discourage large banks in the
countries. In the United States, shares in a United States and Europe from intermediating
number of small companies experienced activity over the year-end period. In contrast,
sizeable swings in prices in early 2021 alongside unsecured borrowing rates in US onshore
heightened retail investor activity. As a result of markets remained low and stable over this
this volatility, brokers faced significantly higher period (Graph 1.29).
margin requirements to clear equity trades in
certain companies; in response, some online The US dollar has depreciated
brokers restricted purchases of these shares to significantly
reduce their own exposures. The US dollar has depreciated further on a trade-
weighted (TWI) basis since early November and
is around 11 per cent lower than its peak in
Graph 1.27 March 2020 (Graph 1.30). Since early November,
Corporate Bond Markets
% Yield (US dollar) Yield (Euro) % the depreciation of the US dollar has been
12 12
High yield
consistent with expectations of a stronger
9 9
6 6
recovery in global growth and a general
3 3 improvement in risk sentiment.
Investment grade
bps bps
Spread (US dollar)* Spread (Euro)* The euro has been little changed over recent
1,200 1,200
900 900
months, while the UK pound appreciated in the
600 600 lead-up to the post-Brexit trade deal that was
300 300 reached in December; even so the UK pound
0 0
2017 2021 2017 2021
* Spread to equivalent maturity government bond yield
Source: ICE Data is used with permission
Graph 1.29
US Dollar Money Market Rates
Spread to 3 month OIS*
bps bps
Graph 1.28 Unsecured rates FX swaps***
Financial
Equity Prices commercial
1 January 2019 = 100 200 200
paper**
index index
United States Euro area United Kingdom
JPY
150 150
S&P 500 100 100
Euro STOXX
125 125 EUR
LIBOR
FTSE 100
100 100 0 0
AUD
Non-financial
commercial paper
75 75
S&P 500 banks -100 -100
2018 2019 2020 2021 2018 2019 2020 2021
50 50
Euro STOXX FTSE banks * Overnight indexed swaps
banks ** Data unavailable from 27 March to 6 May and 4 June to 12 June
25 25 due to insufficient trading volumes
2019 2021 2019 2021 2019 2021 *** 3 month LIBOR minus 3 month FX swap basis
Source: Bloomberg Sources: Bloomberg; RBA; Refinitiv
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 1 17remains well below its level prior to the Brexit as having entered the crisis with stronger
referendum in 2016. The currencies of most fundamentals than other regions, including
other advanced economies, including Australia, stronger economic growth and more fiscal
have also appreciated over recent months (see space.
‘Domestic Financial Conditions’ chapter for Some EMEs remain vulnerable to changing
recent developments in the Australian dollar). conditions related to the health and economic
crisis. While there has been a general
Financial conditions in emerging improvement in financial conditions since the
markets have improved onset of the pandemic, they remain tighter for
Financial conditions in emerging market more vulnerable EMEs, most notably South
economies (EMEs) have improved in recent Africa and Turkey. Developments over the past
months. Policy rates for most EMEs have been year in these 2 countries have exacerbated pre-
little changed at low levels and a number of EME existing vulnerabilities such as weak economic
central banks have indicated that the scope for growth, large fiscal deficits and reliance on
further policy easing is limited. Yields on bonds external financing.
denominated in local currency remain around The International Monetary Fund (IMF) has
record lows for most EMEs, despite recent continued to expand its provision of financial
increases in Latin America. Equity prices have assistance. In general, IMF lending is beginning
risen further, there have been large investment to transition from emergency support to longer-
inflows and currencies have generally term, reform-based programs. In recognition of
appreciated against the US dollar. Spreads on the particular challenges faced by low-income
government and corporate bonds denominated countries, G20 members agreed upon a
in US dollars have continued to narrow but common framework to guide the restructuring
remain above their pre-pandemic levels. of official sector debt in those countries facing
Financial conditions in emerging Asia have debt distress.
generally been more favourable than in other
regions over the past year (Graph 1.31). That is
because the region has benefited from the
recovery in global trade and production as well
Graph 1.31
Emerging Markets - Financial Conditions
Graph 1.30 % Government bond yields* Equity prices** index
Trade-weighted Exchange Rates 8 120
Latin America Asia***
1 January 2018 = 100 7 100
index index
6 80
5 60
115 115
Japanese yen index Exchange rates** Cumulative flows to funds**** %
(against the US dollar)
110 110 100 3
Europe, Middle East
90 0
and Africa
105 105
Euro 80 -3
US dollar
70 -6
100 100 J FMAM J J A SOND J F J FMAM J J A SOND J F
2020 2021 2020 2021
* Local currency bonds, weighted by market value
95 95 ** 1 Jan 2020 = 100
M J S D M J S D M J S D M *** Excluding China
2018 2019 2020 2021 **** Per cent of assets under management; includes flows to bond
Sources: BIS; Bloomberg; Board of Governors of the Federal Reserve and equity funds
System Sources: Bloomberg; EPFR Global; IMF; JPMorgan; MSCI; RBA
18 R E S E R V E B A N K O F AU S T R A L I AOngoing policy support and mass • Some economies may have to tighten
vaccinations should enable a durable containment measures further or keep them
economic recovery in place for longer, which raises near-term
A successful rollout of mass vaccinations downside risks. Challenges posed by virus
globally should allow a durable unwinding of mutations are increasing, as more
social distancing measures and an increase in contagious variants of the virus are
economic activity over the course of 2021. Even spreading globally and the high level of
still, the level of global economic activity is infections increases the possibility that
expected to remain below its pre-pandemic further new mutations may emerge.
trajectory which will keep inflationary pressures • Further out, the outlook assumes that
low and mean that fiscal and monetary policy vulnerability to the virus in advanced
support will be required for some time. economies will have fallen significantly by
Australia’s major trading partners’ GDP is the second half of 2021 owing to the rollout
expected to grow by 7 per cent in 2021 and by of vaccinations. Achieving this time frame
4½ per cent in 2022 in year-average terms will require significant mobilisation of
(Graph 1.32). The outlook is a little stronger than resources.
at the time of the November Statement. Part of • Fiscal policy could be significantly more
this upgrade stems from a better starting point: expansionary than expected, especially in
activity was generally stronger than expected in the United States, which should boost
the September quarter and recent virus growth but may also put upward pressure
outbreaks do not appear to have fully offset this. on bond yields and tighten financial
Further out, improved prospects for the mass conditions. Conversely, a premature
rollout of vaccines have also contributed to a winding-down of policy support could
stronger outlook. precipitate a downturn before the recovery
However, the outlook remains highly uncertain was complete.
due to near-term pandemic developments, the
effectiveness of the rollout of vaccinations and The economic recovery is likely to be
uncertainty around the path and traction of faster than typical but still incomplete
future policy support: Overall, global economic activity is expected to
recover faster than in a typical recession because
much of the weakness has been the result of
Graph 1.32
Global GDP Outlook
mandated constraints rather than weak
index
March 2019 = 100
index
demand. Also, in many advanced economies the
Australia’s MTP* Global**
scarring effects on the labour market are likely to
110 110
Feb ’20 SMP have been more limited than usual because of
105 105 proactive fiscal and monetary policy responses.
Current
100 100
Support for private incomes, constrained
consumption opportunities and precautionary
95 95
motives have led to a considerable build-up in
90 90 savings, which could significantly boost
85 85
consumption when the pandemic recedes.
2020 2022 2020 2022
* Australia’s major trading partner GDP; weighted by Australia's Despite the more positive outlook, the sheer
export shares
** Weighted by purchasing power parity GDP
Sources: ABS; CEIC Data; Consensus Economics; IMF; RBA; Refinitiv
scale of the economic contraction in the first
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 1 19You can also read
