Australia’s Central Bank decides in favor of keeping cash rate unchanged on Tuesday

In its first policy meeting of the year, Australia’s central bank decided in favor of keeping the cash rate unchanged on Tuesday. In its statement, the bank was also optimistic about the economic outlook at large. Signs from markets as well as the experts, however, are sure that bushfires and the ongoing Coronavirus outbreak are likely to call for aggressive easing in the upcoming months.

The Reserve Bank of Australia (RBA) had cut the key rate thrice in 2019 that brought it to the record low of 0.75%. The move was directed at achieving the inflation and employment goals. In its meeting on Tuesday, the RBA also reiterated its previous forecast for economic growth in Australia that is expected at 2.75% this year and at 3% in the next year.

Governor Philip’s Comments After The Policy Meeting

Governor Philip Lowe of the RBA commented in a statement after the meeting:

“The outlook was supported by “the low level of interest rates, recent tax refunds, ongoing spending on infrastructure, a brighter outlook for the resources sector and, later this year, an expected recovery in residential construction.”

The optimism of the RBA and its decision of keeping the rate unchanged sent the Australian dollar up on Tuesday to $0.6720 against the greenback in the forex market that marked a 40 pips gain for the day. At the time of writing, the currency pair is trading even higher at $0.6735.

As many as 32 of the analysts (majority) surveyed by Reuters in the past week had anticipated the RBA to keep rates unchanged at 0.75% in its policy meeting on Tuesday.

Rates Could Drop To 0.25% Later In 2020

In light of the bushfires and coronavirus weighing on the global economic outlook, however, analysts are now expecting the rate to drop to 0.5% in April. Data from financial futures is also hinting at the prospect of an even deeper fall to 0.25% in 2020.

Since both the events are likely to weigh on domestic growth, as per Lowe, Australia will need to keep the interest rates lower for an extended period to support the economy. On top of the impact of the bushfires on the gross domestic product, the recently introduced travel bans, according to the National Australia Bank analysts, are likely to push the Q1 GDP growth down by 0.15 percent.

China is not only the biggest trading partner for Australia but its students and tourism contribute 0.9% to the Australian annual economic output that is currently valued at A$2 trillion.