MNI PREVIEW: RBA Looks Set For Inter-Meeting Easing Move

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia is expected to cut interest

rates to a fresh record low and possibly announce a move into asset purchases

Thursday, in a move outside its regular meeting schedule.

     Following a 25bps cut to 0.50% at the March 3 meet, the RBA is expected to

trim another quarter-of-a-point off the benchmark rate to 0.25%.

     Any announcement will likely come in a keynote speech from Governor Philip

Lowe slated for 1600 local time (0500GMT), when he is will address the

developing economic crisis brought on by the coronavirus pandemic.

     --BOND BUYS

     The RBA has consistently said that once it cut rates to 0.25% the next move

would be a program to purchase Australian Government Bonds, with a zero or

negative rate policy ruled out for now, as is the purchase of corporate debt.

     Speaking last week, Deputy RBA Governor Guy Debelle confirmed that a

program of government bond buying was a scenario "we are certainly going to have

to consider" if the RBA ran out of interest rate ammunition, adding it could

also consider a yield curve control program.

     "We would talk about the likely future path of interest rates ...to

validate that, we'd be operating in the government bond market as necessary,"

Debelle said.

     --LOWER GROWTH

     The RBA sees the pandemic impacting Australia's tourism and education

exports, which comprise 5% of national GDP. These two sectors are expected to

decline by around 10% in the March quarter, lowering overall GDP by around 0.5

percentage points in Q1.

     The Bank has already estimated the impact of the January bushfires as

lowering GDP by 0.2 percentage points for Q1.

     The RBA, and now the Commonwealth Government, are resigned to a negative

quarter in Q1 but are battling to prevent negative growth in Q2 which would send

Australia into its first recession in more than 25 years.

     Australian Prime Minister Scott Morrison is also expected to announce

details of a second program of fiscal stimulus on Thursday, following on from a

A$17.6 billion program announced last week.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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