RBA cuts the cash rate by 25bps to 0.5%

The Reserve Bank of Australia Board cut the cash rate by 25 basis points to 0.5% at its March policy meeting in Sydney today. This move had been fully discounted in market pricing, while economists had been broadly divided. The decision statement from Governor Philip Lowe outlined that the Board had come to the decision to cut the cash rate "to support the economy as it responds to the global coronavirus outbreak".

While uncertainty abounds in this environment, the governor outlined that "global growth in the first half of 2020 will be lower than earlier expected". As guided in our preview of today's meeting, global central banks had signaled their intent to respond to the shock of the coronavirus outbreak, meaning that the RBA would come into line with this broad-based shift to easier policy stances. As the governor noted; "In most economies, including the United States, there is an expectation of further monetary stimulus over coming months". Not moving in line with this shift would have risked an unhelpful appreciation of the exchange rate.    

Domestically, the coronavirus outbreak was assessed as having "a significant effect" on the economy, most notably in the export sector through education and travel. Moreover, the additional layer of uncertainty it had brought on meant that consumer spending would likely be impacted. As a result, the RBA is anticipating a GDP growth outcome in the March quarter that is "noticeably weaker than earlier expected". Once contained, the governor outlined that the fundamentals are expected to see the economy "return to an improving trend", supported also by measures from fiscal authorities; "The Australian Government has also indicated that it will assist areas of the economy most affected by the coronavirus". The recent uptick in the unemployment rate to 5.3% in January was noted, as was the sudbued wages growth outcome from Q4. On the housing market, there had been "further signs of a pick-up in established housing markets, with prices rising in most markets, in some cases quite strongly". 

The final paragraph noted that with progress towards its employment and inflation objectives expected to be slowed, the Board had assessed that "it was appropriate to ease monetary policy further to provide additional support to employment and economic activity". The Board retained its explicit easing bias and is prepared to lower the cash rate further if the domestic economy requires further support in response to the unfolding impact of the coronavirus outbreak.