The Reserve Bank of Australia on Tuesday left the rate on the cash rate and the yield on three-year bonds at 0.25%. The bank would buy Australian government securities on Wednesday to keep yields in line with the target. The three-year yield fell 1.4 basis points to 0.255%, the largest decline since June 11.
The Australian dollar rose after publication, after which the decline to trade changed slightly at 71.20 US cents in Sydney. The RBA is trying to target the blow to the economy from effectively isolating Victoria, which accounts for nearly a quarter of gross domestic product, and broader influence on sentiment as uncertainty rises, as reported Bloomberg.
Victoria ordered the shutdown of much of Melbourne’s economy for six weeks as the virus outbreak shows no signs of abating. Construction firms in Melbourne are set to reduce the number of workers, and production at a meat processing plant across the state will be cut by a third.
Prime Minister Daniel Andrews said on Monday that key services such as banks, supermarkets, pharmacies, and gas stations will remain open, but new restrictions will force another 250,000 workers to stay at home. Analysts at Credit Suisse Group AG note that they expect more serious labor market disruptions in the retail, wholesale, service, and construction sectors.
The bank has provided updated baseline scenarios for Australia’s outlook, projecting production to fall 6% by 2020 and grow 5% in 2021. Despite the manufacturing sector, the commodity market gives a positive outlook due to the demand for iron ore from China.