The Reserve Bank of Australia releases interest rates today

The Reserve Bank of Australia (RBA) is expected to announce today that it will maintain the country’s interest rate at

Reserve Bank of Australia

Photo: Brendon Thorne/Bloomberg

The Reserve Bank of Australia (RBA) is expected to announce today that it will maintain the country’s interest rate at 0.25%.

As a result of the COVID-19 pandemic, Australia’s economic downturn is likely to extend into the third quarter, making it the longest recession in almost 40 years. Australian private banks expect a sluggish GDP recovery that will drag on until the second half of 2022.

Consumer spending, which accounts for 56% of Australia’s economic activity, is dependent on the stable growth of the economy. Recently, consumer spending in Australia has slowed down not only due to the pandemic-induced recession, but also because of record low levels of consumer debt—a result of speculative investment driven by skyrocketing home prices and low interest rates. As wages stagnate and housing prices continue to rise, there is legitimate fear that the Australian housing market will collapse if the current recession continues. This would slash household spending as people opt to buy cheaper goods. Depending on the scale of such a slowdown, the economy will struggle to recover by 2022 as expected. Moreover, with rates at 0.25%, the RBA will have limited ability to respond, forcing Canberra to intervene with government-backed stimulus.

Wake up smarter with an assessment of the stories that will make headlines in the next 24 hours. Download The Daily Brief.