Australia’s central bank has announced today that it has cut its benchmark interest rate by a quarter of a percentage point to a record low of 0.5%. Nonetheless, the new coronavirus continues to drive markets, with Asian stocks in retreat overnight. Ahead of an expected move by the Fed, the RBA has acted to shore up its own economy by cutting rates by 25 basis points overnight.
Reserve Bank Governor Philip Lowe commented that his board took the decision “to support the economy as it responds to the global coronavirus outbreak.” and continued:
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. It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path.
Before the COVID-19 outbreak, the slowdown in the global economy that started in 2018 appeared to be coming to an end, Lowe explained. LeapRate reminds that last year he noted that he wants to use rate cuts to get the economy growing fast enough to push the unemployment rate down to 4.5%. The jobless rate currently sits at 5.3%.
According to the Organization for Economic Cooperation and Development (OECD), economies “strongly interconnected with China” such as Australia would suffer most the virus-linked global downturn. The organization added that the COVID-19 outbreak will reduce Australian economic growth to 1.8% in 2020.
A further interest rate cut by the RBA will take the cash rate down to 0.25%. Economist Saul Eslake suggests that a big motivation at the RBA for cutting interest rates would be the desire to keep the Australian dollar under pressure.