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Australia's central bank ready to act on 'unprecedented' virus challenge
[SYDNEY] Australia's central bank already viewed the spread of coronavirus as an "unprecedented" event at its policy meeting this month, and the worsening crisis has since prompted emergency liquidity injections and the promise of yet more easing.
Minutes of the March 3 meeting showed the Reserve Bank of Australia's (RBA) Board feared the virus would be a significant drag on economic growth and reacted by cutting the cash rate a quarter point to a record low of 0.5 per cent.
Yet the situation has deteriorated so rapidly that the bank moved this week to pump cash into the financial system to ease a logjam in the bond market, while promising a new package of stimulus measures would be announced on Thursday.
Analysts assume the bank will cut its cash rate to 0.25 per cent and likely outline a plan to buy government bonds with the aim of keeping longer-term yields low.
The RBA has argued that cutting cash rates under 0.25 per cent would be counter productive, but pulling yields down would at least lower borrowing costs across the economy.
Minutes of the March meeting showed policy makers were ready and willing to act.
"The Board was prepared to ease monetary policy further to support the Australian economy," the minutes showed.
Members also agreed it was important to "maintain contact" given the speed of events, suggesting they would consider moving before the next scheduled policy meeting on April 7.
A near-term containment of the virus was considered "very unlikely" and outweighed concerns that lower rates would fuel an unwanted explosion in borrowing to buy houses.
A cut in rates would, however, put downward pressure on the local dollar and provide extra cash flow to indebted consumers and businesses.
Central banks around the world have launched a coordinated round of easing, led by a 100-basis-point rate cut from the US Federal Reserve on Sunday.
Financial markets, however, have gone from bad to worse with Wall Street shedding over 10 per cent in value on Monday and the Australian market down sharply again on Tuesday.
The destruction of wealth is badly bruising consumer sentiment and leading businesses to reconsider investment plans, threatening jobs and spending.
"There has been sharp falls in the prices of risky assets and markets were finding it difficult to price the risks, given their unprecedented nature," the minutes showed.