‘Devil in the detail’ of RBA cut
The Reserve Bank of Australia will "almost certainly" pull the trigger on an emergency rate cut this afternoon to ease the financial burden of the coronavirus pandemic.
The move will see interest rates tumble to 0.25 per cent as the spread of the deadly virus continues to cripple the economy and shuts down supply chains.
IG market analyst Kyle Rodda said investors will be eager to dissect the explanation from the RBA governor Philip Lowe and what other levers are pulled to help stimulate the spluttering economy.
"We're going to see an interest rate cut today almost certainly and probably an announcement of the quantitative easing program," he told news.com.au.
"The RBA has already flagged that but the devil will be in the detail, so how big this program is going to be, whether they'll have other measures to try and support the financial system and stimulate economic growth.
"The impacts will reverberate through the market once we know that outcome."
The central bank wasn't scheduled to meet until the first Tuesday of April.
If it does cut rates later today, it will mean a fresh historic low for the country. This trigger wasn't leaned on during critical stages of the global financial crisis or the upheaval of the 9/11 terrorist attack and would signal the seriousness of the current economic woes.
The Australian share market has lost hundreds of billions dollars in the last two weeks and is bracing for further heavy falls as businesses across the country grind to a halt.
Prime Minister Scott Morrison announced mandatory self-isolation for travellers arriving from overseas, non-essential gatherings of more than 500 people have been suspended and various sports and cultural events were called off to contain the spread of the deadly disease.
The RBA move would mirror the Federal Reserve in the US and its New Zealand counterpart and follows its decision to embark on buying government bonds and quantitative easing -- effectively encouraging consumer spending by printing more money and pumping it into the economy.
NAB released a market research note on Monday detailing the urgency for the RBA stepping in as the national and global economy continues to "rapidly deteriorate".
"There seems little point in waiting three weeks to deliver further support to the Australian economy on the interest rate front," the economy watch note says.
AMP chief economist Shane Oliver said the volatility plaguing global markets reflected the "huge uncertainty" the pandemic had created for investors.
"They're just trying to work out how long the virus will continue to impact economic activity and by how much," he told news.com.au.
"And at the same time, they're also having to allow for the policy stimulus which might not offset the flow-on from the virus - it's not going to stop people getting sick or staying at home, but it might stop companies going bust and households defaulting on their loans.
"That's why central bank help is very important."
Deloitte Access Economics partner Chris Richardson said given the actions taken by economic policymakers in other countries, the RBA "can't be seen to be sitting on the sidelines".
"This is definitely a pedal to the metal moment," he told news.com.au.
"The difference between Australia and other nations won't be interest rates, it will be the ability to use government budgets to pitch in on this fight. "And you'd prefer to be us. We began this with a healthier budget than almost any other rich nation in the world."
The health-based cause means the current financial crisis and looming recession is unique, Dr Oliver said, and therefore should by nature be temporary.
"Once that disruption is removed and the virus has run its course, things will rebound a lot faster than we saw out of the GFC or past recessions," the leading economist said.
"But if things are allowed to get too bad then companies might start going bust and households might start defaulting on their loans."