The minutes from RBA’s latest meeting reveal the central bank admitting that Australia’s economy is set to experience an unprecedented contraction in the wake of the coronavirus pandemic, but fiscal and monetary stimulus measures can help offset some of the impact. In its most recent monetary policy meeting held earlier this month, the RBA held the cash rate steady at 0.25% but confirmed its intention to hold three-year bond yields close to 0.25% by buying up more government debt.

RBA board members anticipate a 10% contraction in the Australian economy during H1 2020 and an overall contraction of 6% for the entire year. The RBA also confirmed, “Members noted that the nature of the contraction and the expected recovery was also unprecedented because they were driven by public health measures, rather than induced by economic or financial factors.”

The central bank also expects unemployment levels to remain high through next year as a result of the pandemic, while inflation will stay below the RBA’s target of 2-3% for a few years going ahead. Australia has been one of the few countries in the world that have managed to control the pandemic and reopen its economy, however, it faces significant downside risks due to a collapse in external demand as the lockdown continues across several other countries.