MNI PREVIEW: RBA Seen On Hold, Awaiting Virus Impact Outlook

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia is set to leave policy

unchanged at its March meeting, despite acknowledging the economic impact of the

coronavirus outbreak.

     The Bank is thought to have already downgraded Q1 growth forecasts and

stands ready to ease again if required, although with rates at a record low

0.75% and policy markers hesitant to use extraordinary measures, it is running

out of ammunition.

     The timing might not be right for a March 3 cut, as the RBA will perhaps

need to save the few bullets it has left in case the virus impacts worsen and

extend until later in the year.

     The bank acknowledged a case for a rate cut last November but decided

against it due to the potential hit to business and consumer confidence.

     The initial assessment inside Martin Place was for an outbreak of a shorter

duration than has transpired and an impact like that of the 2002 SARS outbreak,

but the virus is now expected to have a deeper effect on trade and supply

chains.

     --GROWTH HOPES

     The RBA has hoped the recent house price recovery -- driven by lower rates

and regulatory easing -- would kickstart sales of household goods as people move

or prepare properties for sale. However, many goods in this sector, including

furniture and white goods, are sourced from factories in China.

     RBA growth forecasts have already seen modest downgrades from November,

largely because of the expected hit from bushfires that ravaged parts of the

country, but are still ahead of the 1.7% recorded in Q3. The bank is currently

forecasting annualized growth of 1.9% in June, down from the 2.6% forecast in

November, with year-end forecasts now at 2.7%, trimmed modestly from the 2.8% in

the previous forecast.

     GDP data for the last quarter of 2019 will be released by the Australian

Bureau of Statistics on March 4, the day after the RBA meeting.

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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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