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Australia Lowers Rate To Combat Risks Amid Coronavirus Outbreak

australiacentralbank july02 02mar20 lt

Australia's central bank lowered its key interest rate by a quarter-point to a new record low, on Tuesday, as risks to the economy from global coronavirus outbreak escalate.

The board of the Reserve Bank of Australia, governed by Philip Lowe, decided to cut the cash rate unexpectedly by 25 basis points to 0.50 percent. The bank was forecast to retain its rate at 0.75 percent.

The central bank had lowered the rate by 25 basis points last October, which was the third such reduction in 2019.

Policymakers observed that 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," the bank said.

The Board reiterated that it is prepared to ease monetary policy further to support the Australian economy.

The bank noted that 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. Consequently, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected, Lowe said.

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," he added.

The rate decision came ahead of the release of quarterly national accounts on Wednesday. The economy is forecast to grow 0.4 percent sequentially and 2 percent in the fourth quarter from the last year.

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