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Reserve Bank of Australia cuts cash rate to just 0.50% to 'support the economy as it responds to the global coronavirus outbreak'

Reserve Bank of Australia cuts cash rate to just 0.50% to 'support the economy as it responds to the global coronavirus outbreak'

The Reserve Bank of Australia (RBA) has cut its cash rate by 25 basis points to 0.50% to "support the economy as it responds to the global coronavirus outbreak."

Off the back of this news, ASB chief economist Nick Tuffley says he now expects the Reserve Bank of New Zealand to cut the Official Cash Rate by 25 basis points at both its next two reviews, on March 25 and May 13, dropping it to just 0.50%.

"The global impact of the COVID-19 outbreak now looks like it will be more enduring than thought not much more than a week ago. The most effective support for New Zealanders and the NZ economy will come from central government responses, which can be most effectively targeted at the people and businesses most affected by the economic disruption," Tuffley says.

"[But] given the growing risk of more than a short shock, monetary policy also has a role in a co-ordinated government response. The Reserve Bank of Australia’s cash rate cut reinforces that central banks are now much more inclined to step in and provide support to economies. Accordingly, we now expect 25bp OCR cuts in both March and May, taking the OCR to 0.5%. We stress that the situation remains fluid, and so will the likely policy responses," says Tuffley.

The Kiwi dollar rose against the Greenback and fell against the Aussie dollar following the RBA cut. Our exchange rate chart is here.

Below is the RBA's statement.

Statement by Philip Lowe, Governor: Monetary Policy Decision

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 0.50 per cent. The Board took this decision to support the economy as it responds to the global coronavirus outbreak.

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. Prior to the outbreak, there were signs that the slowdown in the global economy that started in 2018 was coming to an end. 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. Policy measures have been announced in several countries, including China, which will help support growth. Inflation remains low almost everywhere and unemployment rates are at multi-decade lows in many countries.

Long-term government bond yields have fallen to record lows in many countries, including Australia. The Australian dollar has also depreciated further recently and is at its lowest level for many years. In most economies, including the United States, there is an expectation of further monetary stimulus over coming months. Financial markets have been volatile as market participants assess the risks associated with the coronavirus. Australia's financial markets are operating effectively and the Bank will ensure that the Australian financial system has sufficient liquidity.

The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors. The uncertainty that it is creating is also likely to affect domestic spending. As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected. Given the evolving situation, it is difficult to predict how large and long-lasting the effect will be. Once the coronavirus is contained, the Australian economy is expected to return to an improving trend. This outlook is supported by the low level of interest rates, high levels of spending on infrastructure, the lower exchange rate, a positive outlook for the resources sector and expected recoveries in residential construction and household consumption. The Australian Government has also indicated that it will assist areas of the economy most affected by the coronavirus.

The unemployment rate increased in January to 5.3 per cent and has been around 5¼ per cent since April last year. Wages growth remains subdued and is not expected to pick up for some time. A gradual lift in wages growth would be a welcome development and is needed for inflation to be sustainably within the 2–3 per cent target range.

There are further signs of a pick-up in established housing markets, with prices rising in most markets, in some cases quite strongly. Mortgage loan commitments have also picked up, although demand for credit by investors remains subdued. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality. Credit conditions for small and medium-sized businesses remain tight.

The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target. The Board therefore judged that it was appropriate to ease monetary policy further to provide additional support to employment and economic activity. It will continue to monitor developments closely and to assess the implications of the coronavirus for the economy. The Board is prepared to ease monetary policy further to support the Australian economy.

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Big red country wobbles under massive debt loading, threatens to collapse like game of jenga

Big red desert country with a smattering of green around the edges has either cleared most of it's trees or they've burned down.

Long term prognosis = not good.

Why not just drop it 50 basis points to 0.25% rather than do another 0.25% drop in another month or two..

If you had three bullets left, would you spray them all at once or wait until you've got a clear shot?

They have a 4th bullet. Negative rates combined with the cash ban.


Yes but the difference between the 3rd bullet and the 4th bullet is what direction the gun is pointing ;-)

Best series of comments this year.

the problem of a big head and little arms

Not sure if Rockstar OCR has been double that of the lucky country previously.

"Credit conditions for small and medium-sized businesses remain tight". Trying to stimulate economic growth by keeping asset prices high is like preparing for a race by buying expensive shoes. At some stage, businesses will need money for stimulation to occur.

Agree. They're pushing on a string. Not a lot of room for stimulus.

You can try to stimulate the demand side all you want, but its the supply side thats the real issue. Anyone importing can't get products from factories, and those exporting can't get anything out. No supply = no revenue. No interest rate is going to help that material supply chain breakdown. Going to be very interesting.

What a load of exaggerated rot! Shanghai is back open for business container vessels are on the move, the wheels of trade will not come to a grinding halt. Yes there has been a slow down but..... "Anyone importing can't get products from factories, and those exporting can't get anything out." is exaggerated nonsense

I think Merrydaze, Shanghai is only partly open for business. This tweet from the China Global Times -
“ Chinese state media is reporting that Apple will be hard hit by the coronavirus shutdown. It says the plant in Shanghai which delivers 40%of the iphone handsets only has 25% of workers are back at work. Also Foxconn’s plant is only running at 22%.”

@merrydaze. Are you an importer? Because that's my business, and we can't get any products built in our brand's factories right now. The only product that is moving is the product that we built prior to Chinese New Year, that the factory owners bribed the security guards to help load into a container. They still have no staff. So unless you're in our factories yourself and have different information, I'm pretty confident in my nonsense/rot.

We'll have no revenue very soon because we have no supply.

You should ask the forestry industry about whether they are exporting.

Seems Interest also agrees this morning.

"Rate cuts by central banks at this time seem odd. The policymakers there must know that the global economy is facing a supply shock and they are acting as though it is a demand shock. The world economy is suffering because China stopped to tackle the virus threat, not because consumers stopped spending. That is only an after-effect. Any economics student can tell that rate cuts are very unlikely to have any influence in a supply shock situation. All they are doing with rate cuts is reinforce the sense of foreboding, making the economic effects on demand worse. However, central banks seem to be in a herd mentality at present and it would not surprise if the RBNZ chimed in with its own cut."

Totally agree about forestry but that's not what you posted. Your language was exaggerated rather than rational, just saying keep it real, its nowhere near as comprehensive as you have implied. Having said that I feel for your circumstances and wish you all the best this will pass.

Thanks. Totally agree. Just going to be some hurt for a while.

And that's credit availability, not cost. So basically the big end of town get cheaper interest rates, which they use to out compete smaller firms and/or leverage up to buy them.

Which destroys overall productivity growth. It's for this reason that low rates are inherently monopolistic and anti-capitalistic. Those closest to the money fountain benefit most.

ASB change call and see RBNZ cutting in March and May.
By December banks will agree to pay customers who take a mortgage.

And charge customers for keeping money with them ?

Big call cowpat. What do you think this will do to the NZ property market?

General HubHub , (what a wonderful name), I possibly was being a little tongue in cheek following ASB changing their call from no cuts all year. If Hawkesby's recent comments are to be followed the RBNZ will not cut any time soon . But, given the rate differential with Lucky country , if they do not , parity is close by, which creates other issues. . For a number of reasons the volume of house sales are low , cutting the OCR at this juncture (or if the need is required thru zero) will do little to inflate house prices as the speculation is absent and will be absent thru the year.


The market seems full of baby boomers at the moment, who are buying houses to rent out, to supplement their future retirement. This is due to interest rates on their savings at the bank being so poor.

That is certainly my observation Rob. I am watching with real interest at moment.

Thanks Cowpat... you have a great name too.
I think you are right, though you are probably only looking at the Auckland market. Property prices here in our Nation’s Great Capital are skyrocketing... it is going to be interesting to watch. We have been looking to buy, but are going to sit on the sidelines for a few weeks and see where this whole thing lands.
I’ve been following the China markets today and they are struggling to stay in the positive.

Unfortunately, Wellington is the home of central govt and that is sure to keep growing regardless of what happens to the real economy, so I wouldn’t bank on any real estate market correction there anytime soon.

The Wellington market did slow down for a bit in autumn/winter 2019 but since then has taken off again and now our street is rammed with people renovating or building. We are centrally located in an established suburb so building is *very tricky* and people are putting a huge amount of time and effort with Resource Consents etc. There are 6 new builds occurring or consented within a stones throw and just on our tiny street alone, 4 major renovations. There is a massive whiff of gentrification at the moment. The house we rented in Karori was put on the market after we left...just sold for $1.15mil (RV $870k) 130sqm with 2 tiny bathrooms from the 1950s. I mean maybe there is going to be a massive correction but there is zero sign of that currently.

What about the earthquake and landslide risks in Wellington ? Have they subsided ?

by Pragmatist | 3rd Mar 20, 8:38am
Do you struggle to get your ego through normal doorways?

And just to clarify,
"I do, swap rates are currently plunging and I cannot see any reason that would lead central banks to react differently than lowering cash rates to upcoming problems."
Nobody has lowered the cash rates yet. Your prediction is yet to happen. So perhaps you should stop patting yourself on the back and crowing like a fool

Says you yville ... gosh... you really need to stop and think before you write some of the things you do. You’re starting to be really unpleasant.

So predicting something correctly and exposing the person making fun is "unpleasant" huh

Do you have no personal insight? You really need to read your comments before you hit ‘save.’ For someone who is often insulting others, you have pretty thin skin when called out on it. Try being polite, it’s what we do in a civil society. You can tell someone they are wrong, without resorting to puerile name calling.

OK then, tell what puerile name calling I used?

Sigh... you don’t even know you do it, nor see the irony in some of the things you’ve written.

OMG you think that my post at 5:57 are my words, don't you? They are pragmatist's words, NOT MINE! I was quoting Pragmatist, who rudely shut me down when I predicted yesterday that central banks will lower rates.. Re-read the post!

U ok hun?

Yvil, do you sit on this site spamming F5 on your keyboard to refresh the page or do you get email reply notifications?

by General HubHub | 3rd Mar 20, 7:30pm
Do you have no personal insight?......

by Yvil | 3rd Mar 20, 7:31pm
OK then, tell what puerile name calling I used?

"So predicting something correctly and exposing the person making fun is "unpleasant" huh"

No, the nearly dislocating your arm to pat yourself on the back on the basis of a prediction which hadn't come true at that time was, and inferring I should be thanking you for some "help" which was not helpful, nor was the opinion requested of you.

I notice you haven't answered the question yet either.. do you have trouble getting your ego through normal doorways?

You can find Pragmatist's post here:

Yvil was posting it to show his prediction was correct (in respect of the RBA at least) and Pragmatist's whine was... whiney.

Try and keep up GH.

Thanks Heavy G

Fed has cut now. RBNZ will soon. DGMers be crying like bitches.

You are just as unpleasant as yvill... try be civil. It’s what we do in a civil society.

Harden up snowflake. If you can't take it don't dish it out. Hypocrite.

By requesting someone be polite is some how being soft, oh gosh that really is quite a silly response. How am I being a hypocrite? By pointing out your general rudeness and explaining to you how in a civil society it’s unbecoming to be so uncouth? This should have been taught to you in kindergarten... I guess the truth burns and requires a knee jerk reaction. You have a wonderful day, you hear now.

There's certainly a few e-thugs on this site at the moment..

Or you can go back to the original thread that started this exchange -> Thats where Yvil got all offended when I happened to point out I really didn't give a hoot about his opinion which I hadn't asked for.

Boys, boys! You're all pretty.

Stop tearing strips off each other!


Uncanny how the RBA tracks the 2-year bond traders, perhaps compelled to. ht Michael West

Some chat about rba using qe as a tool to get things moving again given no room to move on rates. They will also throw money into schools, 10k packages for all to go shopping & let loose on mining consents. It's the Aussie play book, along with sand paper ball tampering & disowning Russell Crowe when he throws a phone at someone.

Yaay.. oh yes OZ put it another two more down the next 1-2yrs - as we're coming to you boost up your GDP numbers, and ignore the pun saying that we/kiwi only shifted there to raise the IQ number, that is just a rude saying. NZ soon will imported plenty of bugs scientist from Wuhan Institute of Virology (the one that the first one elaborate about this potential RNA mutation/adaptable) - OZ really generous on housing it's most valuable resources, NZ need to learn more from OZ on that sense.

wow... there are some real jerks on this site tweeting like the totally immature donald trump

I have been tracking the daily virus statistics and working out the death rate by comparing the number that have died to the number that have recovered, both on a cumulative and daily basis. I think that this is the only sensible way to do it because comparing the final outcomes seems far more reliable than working with those that become infected. At any point measuring the number becoming infected has a lot of doubt around it, whereas if you catch it, you only have two pretty concrete options. You either die or recover.
Anyway from this measurement it appears that the death rate is settling somewhere between 5.5 to 6%. So it is a very significant threat and not to be taken as lightly as our extremely foolish politicians and officials are suggesting.