MNI REVIEW: RBA Cuts Rates To 0.5% As Virus Impact Spreads

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia cut its key rate by 25 bps to

0.5% Tuesday, responding to the global coronavirus emergency, promising to ease

further to support growth if needed.

     Expectations of a rate cut began mounting in recent days as the coronavirus

emergency spread and came as other central banks offer statements of support to

the global economy ahead of possible easing moves.

     The Bank also pointed to indications of help from the Australian government

for the areas of the economy hardest hit by the virus outbreak.

     The RBA Board said the rate cut was needed to "support the economy" as it

responded to the economic conditions created by the outbreak, noting a

"significant effect" on the Australian economy, particularly the education and

travel sectors.

     "The Board is prepared to ease monetary policy further to support the

Australian economy," the statement added.

     "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 statement said.

     "The uncertainty that it is creating is also likely to affect domestic

spending," the RBA said.

     --WEAKER Q1

     The RBA said the outbreak would mean that Q1 GDP growth, already expected

to be lower after the bushfire crisis of January, would be "noticeably weaker."

     It was difficult to predict how long lasting the impact of the outbreak

would be, but the bank expected the Australian economy would "return to an

improving trend" once the epidemic was contained.

     Before the virus outbreak intensified, the RBA had been expected to leave

rates on hold, keeping some monetary policy ammunition for later in the year if

required, but its hand was forced by the growing intensity of the virus and the

impact.

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

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

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