3 Mar 2020
RBA Rate Cut - March 2020 meeting
- Chris Lioutas - PSK Chief Investment Officer
At their March meeting, the RBA cut the cash rate by 0.25% to 0.50% to help support the economy as it responds to the bushfires and the global Coronavirus outbreak.
The RBA had as recently as February confirmed that they were very reluctant to cut rates any further, largely took quantitative easing (money printing) off the table, and had been applying pressure on the Federal Government to provide fiscal stimulus in the May budget.
What has forced their hand at the meeting is the likely local economic impact from the Coronavirus in the short term as our biggest trading partner’s economic activity grinds to a halt. What also forced their hand is the likely moves from other developed market central banks (US, Europe, Japan) who are likely to provide further stimulus (rate cuts and/or money printing) in the coming months to help their countries / regions better handle the economic impacts from the Coronavirus. Further stimulus from those central banks would put downward pressure on their currencies, thus leaving the Aussie dollar exposed to a potential rise, which is the last thing the Australian economy needs right now.
It’s also likely the RBA Board has a good handle on the potential Federal Budget changes we’re likely or unlikely to see in May, which may have proven to be too late or too little, or both, relative to the drop in economic activity from the bushfires and the Coronavirus.
There was plenty of conjecture prior to today as to what the Aussie banks might do in response. Westpac, probably the most desperate of the banks from a positive PR perspective, almost immediately announced they would pass on the full rate cut. Given the recent pick-up in the housing market and the highly competitive nature of the big 4 banks in the current environment, it will be difficult for the other banks not to follow suit.
The RBA signed off their statement that they stand ready and willing to ease policy further to further support the Australian economy.
The move today will support asset prices in the short term.