RBA’s Debelle Hints at Further Rate Cuts, As Well As QE
The RBA cut rats yesterday, but they are thinking about cutting again and starting a QE programme now, as coronavirus spreads
The Reserve Bank of Australia (RBA) delivered a 25 bps rate cut yesterday in the Asian session. Markets were totally anticipating it, as coronavirus wrecks havoc in the global economy, especially in China where we saw a deep recession for February.
Australia is closely connected to China, since it is one of the major exporters of raw materials to China and exports are expected to fall considerably. RBA’s Debelle spoke a while ago on the situation and he is hinting another cut in interest rates. Below are some of his main comments:
- Drop in services exports due to coronavirus would cut about 0.5% of GDP in Q1
- Estimates that Australia’s services exports would fall by 10% in Q1
- Still thinks that monetary policy is effective
- Will take into account expected fiscal stimulus in future monetary policy decisions
- We have capacity to cut rates one more time, beyond that we will have to consider QE
So, they are clearly thinking about another rate cut and the table at the top shows that the cut is almost a done deal for next month. But, I don’t think that will be enough, since lower rates won’t make people in China going to work and forget about the virus, and probably Australia as well, if the virus spreads. So, they are seriously considering starting a quantitative easing (QE) programme. This should keep the Aussie bearish.
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