The RBA has cut rates again following calls from within the business and finance community for the bank to provide more stimulus to the Australian economy.
The cash rate now stands at 0.50 per cent.
RBA Governor Philip Lowe had previously said that the economy had reached a “gentle turning point” with improvements in housing growth and a “brighter outlook” for the resources sector. But the bushfire emergency and the coronavirus outbreak had made that turning point more uncertain.
“The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors,” Governor Lowe said in
“The uncertainty that it is creating is also likely to affect domestic spending. As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected. Given the evolving situation, it is difficult to predict how large and long-lasting the effect will be.”
However, Governor Lowe expects the economy will return to an improving trend once the coronavirus is contained. That outlook is supported by the “low level of interest rates, high levels of spending on infrastructure, the lower exchange rate, a positive outlook for the resources sector and expected recoveries in residential construction and household consumption”.
Some commentators have called the decision an “insurance cut”.
“The RBA is one of the first central banks of the developed economies to act, but it is likely that both developed and emerging market central banks will look to ease monetary policy and expand asset purchase programmes in coming months to cushion the blow that corona virus has had on both the supply and demand side of their respective economies,” said Anthony Doyle, cross-asset specialist at Fidelity International.
“As the last decade has shown, coordinated monetary policy accommodation is a powerful positive driver of risk assets generally (including Australian equities and housing), and there is no point fighting central banks unless proven otherwise.”
The decision brings the interest rate closer to 0.25 per cent, at which point the RBA has indicated that it would consider a quantitative easing program.
