Coronavirus fears push Australian central bank to cut rates to a record low of 0.50%

The Reserve Bank of Australia decided in favor of cutting rates further to a record low of 0.50% on Tuesday. With Coronavirus rapidly spreading across borders, multiple other economies are set to follow in Australia’s footsteps and add fiscal stimulus to counter the effects of the global economic slowdown. Tuesday’s decision marks the 4^th time that the Australian central bank has reduced the cash rate. Data from 2020’s first quarter offered substantial evidence that the A$2 trillion economy is losing momentum that assisted RBA’s decision of a rate cut.

Next Rate Cut To 0.25% Is Expected Before June

As per the experts, the next rate cut is expected before June to 0.25%. At this level, policymakers are likely to announce quantitative easing in Australia for the first time. In his comment after the policy meeting, Governor Philip Lowe reiterated that the virus outbreak is taking a significant toll on Australia’s economy. He further added that the extent of the impact and how long it will last can’t be predicted with precision at the moment. According to Governor Lowe:

“The board will continue to monitor developments closely and assess the implications of the coronavirus for the economy. The Board is prepared to ease monetary policy further to support the Australian economy”.

According to the statement by the Organization for Economic Cooperation and Development on Monday, the current slowdown in the world economy that stems from the Coronavirus outbreak is the worst since the global financial crises of over a decade ago. The G7 meetings comprising central bank governors and finance ministers from the 7 advanced economies are scheduled for later today. The meetings are likely to hold a thorough discussion over the virus outbreak and its consequent impact on the global economy.

U.S Federal Reserve Likely To Cut Rate To 0.50% This Month

Financial markets are also expecting the U.S Federal Reserve to opt for a rate cut to 0.50% in March. Owing to the travel bank currently imposed on China, the retail, tourism, hospitality, and transport sectors have taken the primary hit in Australia. With the Australian consumer confidence currently at a 5-year low, the Australian government is currently committed to counter the rising risk of recession. The forex market didn’t respond ferociously to the RBA’s decision. While the Aussie dollar fell to 0.6509 against the greenback as an initial response, the gained traction later in the day and was reported trading as high as 0.6565. At the time of writing, the currency pair is exchanging hands at 0.6548.