RBA Cuts Cash Rate 25bps; Easing Bias Tied to Coronavirus

• Published on
• 03 Mar 2020, 03:01 PM

By Sophia Rodrigues

The Reserve Bank of Australia lowered the cash rate by 25 basis points to a new record low of 0.50% and retained an easing bias tied to the impact of coronavirus, rather than the labor market.

This means the easing bias could translate to a rate cut as soon as next month if there is evidence of further damage to the economy from the coronavirus outbreak.

In a statement Tuesday, the RBA said GDP growth in the current quarter is likely to be noticeably weaker than earlier expected, and acknowledged there is uncertainty on how long the effect of the coronavirus outbreak will last.

Because of this, there would be delay in the progress towards full employment and the inflation target, and therefore the cash rate has been reduced, the RBA said.

The RBA said that the coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than earlier expected

The RBA said, “it will continue to monitor developments closely and to assess the implications of the coronavirus for the economy.”

“The Board is prepared to ease monetary policy further to support the Australian economy.”

The RBA noted that in most economies, including the U.S., there is an expectation of further monetary stimulus over coming months. Financial markets have been volatile but operating effectively in Australia.

The RBA said it would ensure that the Australian financial system has sufficient liquidity.

OUTSIDE CORONAVIRUS, GLASS IS STILL HALF-FULL

Outside of coronavirus, the RBA largely maintained its glass half-full commentary on the economy.

“Once the coronavirus is contained, the Australian economy is expected to return to an improving trend. This 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,” the RBA said.

The RBA gave hint of fiscal stimulus, saying the government has also indicated that it will assist areas of the economy most affected by the coronavirus.

The RBA also remains focused on developments in the housing market which was the key reason it resisted rate cut in recent months. It noted that housing prices rose in most markets, in some cases quite strongly and mortgage loan commitments have picked up.

--Contact: sophia@centralbankintel.com