Following its monthly board meeting on Tuesday (3 March 2020), the RBA announced an emergency rate cut of 0.25 of a percentage point to a new record low of just 0.50 of a percentage point, in an effort to ease the economic fallout of the coronavirus.
“At its meeting today, the board decided to lower the cash rate by 25 basis points to 0.50 [of a percentage point]. The board took this decision to support the economy as it responds to the global coronavirus outbreak,” the RBA announced.
Industry commentators and finance pundits had bet on movement by the RBA, given the predicted effects of the coronavirus on the economy.
Australia is sighted to be one of the countries most affected by the economic fallout of the coronavirus, the OECD said on Monday evening in a report outlining the global threat of COVID-19.
“The adverse impact on confidence, financial markets, the travel sector and disruption to supply chains contributes to the downward revisions in all G20 economies in 2020, particularly ones strongly interconnected to China, such as Japan, Korea and Australia,” the OECD said.
It explained that Australia should look at stimulus measures, including additional precautionary reductions in policy interest rates, to restore confidence and reduce debt-servicing costs.
Further drops predicted
Deloitte’s latest CFO Sentiment Survey revealed that 50 per cent of CFOs expect interest rates to fall further through 2020, and most others expect them to remain at their current all-time low.
Less movement is anticipated with the Australian dollar, with 60 per cent expecting it to remain about the same through 2020.
“After three rate cuts by the RBA in 2019, and sluggish economic performance, it is unsurprising that 96 per cent of CFOs expect rates to fall further or remain steady,” Deloitte partner and CFO program leader Steve Gustafson said.