RBA governor says economy “doing better than was earlier feared”

The Governor of the Reserve Bank of Australia (RBA), Philip Lowe has delivered optimistic updates on the state of Australia’s economy today. Dr Lowe was quoted saying it’s “doing a bit better than was earlier feared.”

According to the Australian Financial Review (AFR) reporting, Dr Lowe made the remarks while speaking in a Senate enquiry into the economic impacts of the coronavirus pandemic.

While Dr Lowe describes the unemployment statistics released earlier this month as a “shocking set of numbers”, he is optimistic the worst is behind us.

“[The jobless numbers] weren’t quite as bad as we thought they would be and the data we have seen since suggests there is a bottoming out” the AFR quotes Dr Lowe as stating. Dr Lowe further stated there has been “some pick up in employment in those industries most affected by the virus.”

However, Lowe also referenced it remains important for the government to not withdraw coronavirus stimulus measures (such as the JobKeeper program) prematurely. He said,

“I think it’s very important that we don’t withdraw the fiscal stimulus too early. … Ending the fiscal support could be damaging, but if the economy bounces back [then] tailoring the fiscal support might be the right thing to do.”

One thing investors may find illuminating is the RBA governor’s continuing assurance that Australia won’t follow other countries in introducing negative interest rates.

He stated that “I don’t think negative interest rates work. The package we have so far is working. If we had to do more we could buy more government bonds.”

What do the RBA governor’s comments mean for the ASX?

I think, for ASX investors, there are good sentiments to take from Dr Lowe’s comments. The rally that the S&P/ASX 200 Index (ASX: XJO) is enjoying today can only continue if underpinned by a strong economic recovery. Dr Lowe’s comments suggest this is starting to take shape (although it’s still early days).

The lost prospect of negative interest rates may disappoint some ASX investors. Yet, it’s good news for retirees and any investors with significant cash savings (although it looks like as low-interest rates are still here to stay).

However, in my opinion, Dr Lowe’s comments also imply that we are not out of the woods yet, and the economic situation remains fluid. That’s why I think ASX investors should still be cautious and prudent. I’m not entirely convinced just yet that the current ASX rally is a new dawn (although I hope it is).

Even so, there’s no doubt that Dr Lowe’s comments today are good news for all ASX investors, and indeed all Australians.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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