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The Reserve Bank of Australia (RBA) has announced its decision on the official cash rate for March amid speculation the fallout from COVID-19 would force the bank to ease monetary policy.
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RBA reveals March cash rate call
03 March 2020
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The RBA has announced its fourth rate cut in the past 12 months, slashing an already historically low interest rate to 0.5 of a percentage point.
“The board took this decision to support the economy as it responds to the global coronavirus outbreak,” RBA governor Philip Lowe said.
“The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors.
“Given the evolving situation, it is difficult to predict how large and long lasting the effect will be. Once the coronavirus is contained, the Australian economy is expected to return to an improving trend.”
Today’s announcement follows a reduction to 1.25 per cent in June, 1 per cent in July and 0.75 of a percentage point in October, with the central bank looking to restore market confidence following a 12 per cent reduction in Australian equities in the last seven days.
Before the rate announcement, comparison site Finder surveyed 39 leading economists, with 90 per cent believing a rate cut would happen in 2020.
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One of the economists who predicted today’s cut, AMP Capital’s Dr Shane Oliver, believes back-to-back disasters are hurting the Australian economy.
“The coronavirus outbreak coming on the back of the bushfires is likely to see the economy go backwards this quarter which in turn is likely to push unemployment up further after the rise to 5.3 per cent seen in January,” Dr Oliver explained.
“Growth should rebound in the March quarter, but given the uncertainty around COVID-19 and its impact globally, there is much uncertainty around that, and given we are so far from full employment and the inflation target, the RBA is likely to take cut the cash rate again in the months ahead.”
Today’s cut has brought the official cash rate to 0.50 of a percentage point, just one cut from the point where the RBA would consider instituting a quantitative easing program.
The RBA’s reduction is in line with market expectations internationally, with it being widely expected for central banks around the world to ease monetary policy.
Bill Nelson, chief economist at the Bank Policy Institute and a former Fed economist, said the Fed and other major central banks, possibly including China’s, could announce coordinated rate cuts by Wednesday morning. The cut would at least be a half-point and perhaps even three-quarters, he said.
“The only way to get a positive market reaction is to deliver more than expected,” he said.
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