RESERVE Bank Governor Philip Lowe has cited the global coronavirus outbreak as the reason for lowering the cash rate by 25 basis points to 0.50%.
“The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than earlier expected,” Mr Lowe said in a statement published on the RBA website.
Mr Lowe said prior to the outbreak, there were signs the slowdown in the global economy that started in 2018 was coming to an end.
“It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path,” he said.
“Policy measures have been announced in several countries, including China, which will help support growth. Inflation remains low almost everywhere and unemployment rates are at multi-decade lows in many countries.”
Mr Lowe said long-term government bond yields had fallen to record lows in many countries, including Australia.
“The Australian dollar has also depreciated further recently and is at its lowest level for many years,” he said.
“In most economies, including the United States, there is an expectation of further monetary stimulus over coming months. Financial markets have been volatile as market participants assess the risks associated with the coronavirus.”
Mr Lowe said the coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in education and travel.
“As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected,” he said.
“Given the evolving situation, it is difficult to predict how large and long-lasting the effect will be.”
DCN reported comments from analyst Duncan Smith on Monday who said with Australia having the lowest cash rate in its history, the RBA’s options were limited and a response to the economic situation was required from the federal government.