March 17, 2020 13:05:44
A swift economic recovery from the coronavirus outbreak is “very unlikely” and the pandemic will have a “significant effect” on Australia’s national finances, according to the Reserve Bank.
Minutes show the RBA does not know when the economy will recoverBut it believes Australia will benefit from a Chinese growth rebound later this yearThe bank is prepared to cut the cash rate again to support the Australian economy
Minutes from the RBA’s board meeting a fortnight ago were released today, as panic selling on global markets fuelled fears of another global recession.
Board members noted that since their previous meeting in February “it had become increasingly clear that the spread of the novel coronavirus would cause major economic disruption around the world”.
“There was an increasing probability that people would seek to avoid gatherings, including public transport and perhaps workplaces,” the board said.
“It was too early to predict how persistent these effects would be and at what point economic activity would rebound.”
Effectively looking into a crystal ball, the board acknowledged that COVID-19 had forced some central banks to consider interest rate cuts, accelerating the RBA’s decision to cut rates on March 3 to a new record low of 0.5 per cent.
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The Reserve Bank is likely to cut the cash rate again to 0.25 per cent later this week when RBA governor Dr Philip Lowe issues an unscheduled policy statement that could include a move to buy bonds and assets through quantitative easing.
In the days since the March board meeting, the US Federal Reserve has made two emergency interest rate cuts of 1.5 percentage points, after heavy selling on Wall Street saw US shares tumble in volumes not seen since the 1987 share market crash.
At the time of the March meeting, the board believed international financial markets were “functioning effectively despite the sharp rise in volatility”.
The minutes noted that despite a freeze in supply chains from China, its demand for coal had not reduced and iron ore imports had not been significantly affected.
The board believed Australia could benefit in late 2020, when Chinese growth is expected to rebound in a race to make up for lost production.
But reflecting previous public statements, the board acknowledged that COVID-19 was hurting Australia’s economy, particularly in education, transport and tourism.
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In addition to the disease’s impact, the minutes note that bushfires over summer will have damaged growth in both the December and March quarters.
The board said an extended period of low interest rates would be required and that it was prepared to cut the cash rate again to support Australia’s economy.
The RBA board’s next scheduled meeting is on April 7, but it is becoming likely that the monthly gathering will be pre-empted by an emergency rate cut this week.
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