COVID-19 and the case for a further cash rate cut
Amid a slide towards a global recession, the Reserve Bank of Australia has held an out-of-cycle emergency meeting, where it grappled with a decision on whether to drop the record-low cash rate even further.
At the meeting, the decision was made to drop the cash rate to 0.25 per cent.
It’s the second consecutive cut in less than three weeks for the central bank, after it slashed the already low interest rate to 0.5 per cent on 3 March.
The next cash rate decision was not scheduled to be announced until 7 April 2020, but the Reserve Bank board had scheduled the emergency meeting in the midst of the coronavirus pandemic.
The last time the Reserve Bank moved to cut rates out of cycle was in 1997.
As at COB 18 March, the ASX 30 Day Interbank Cash Rate Futures April 2020 contract was trading at 99.815 – a 100 per cent indicator that the market was predicting another cut.
The news comes less than a week after Prime Minister Scott Morrison and Treasurer Josh Frydenberg unveiled a $20 billion stimulus package to ward off a recession.
Earlier this week, Reserve Bank governor Philip Lowe released a statement outlining that the RBA does intend to purchase Australian government bonds in the secondary market to ensure the orderly function of the markets.
For Anthony Kirkham, the head of investment management and head of Australian operations at Western Asset, the clarification is reminiscent of statements made recently by the US Federal Reserve.
Just yesterday, Mr Morrison reported that the government is working behind the scenes on further stimulus, and that the Reserve Bank of Australia had been involved in those discussions but would still be making its decisions independently.
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