The Reserve Bank of Australia has cut the cash rate to a new record low 0.5 percent in a bid to soften any economic impacts of the coronavirus.
Pricing for the 25 basis point rate cut advanced after much speculation on Tuesday following a torrid weekend for a coronavirus-rattled economy and expectations of cuts by central banks around the world.
RBA governor Philip Lowe said the easing from 0.75 percent comes ahead of a worse-than-expected near term virus hit to the economy.
Lowe said his previous forecast of a “gentle turning point” in the Australian economy was now under a cloud.
“Prior to the outbreak, there were signs that the slowdown in the global economy that started in 2018 was coming to an end,” Lowe said in his address after the bank’s March board meeting.
“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. Policy measures have been announced in several countries, including China, which will help support growth.”
Lowe said the RBA board remains prepared to ease monetary policy further.
Westpac was the first of the big banks out the door on Tuesday and immediately announced it would pass on the full 0.25 percent reduction in variable interest rates for home loans, as well as small business cash-based loans and overdrafts.
The 0.25 per cent reduction in rates means an owner-occupier with a standard variable home loan of $400,000 will save an extra $60 per month, or $720 per year, Westpac said.
“We recognised that COVID-19 will have a direct impact on our nation’s economy and we want to provide additional support to our small business and home loan customers at this unprecedented time,” Westpac consumer CEO David Lindberg said.
Commonwealth Bank (CBA), NAB, and then ANZ followed with their own announcements to match the cut shortly after. CBA’s Belinda Allen had told the Australian Financial Review of the reserve bank’s decision that, “A fiscal response would be more appropriate.”
Prime Minister Scott Morrison had earlier said he expected the banks to “do the right thing” by consumers and pass on any rate cut in full. He has said that fiscal stimulus is on the way shortly, with the Treasury working out a plan to deliver some relief direct to the taxpayer.
Australia’s interest rate had already been lowered three times to 0.75 percent last year in a bid to kickstart an economy that was sluggish even before the summer’s bushfires and coronavirus threat came into play.
The Australian dollar rose to 65.52 US cents, from 65.28 US cents, immediately after the 2:30 p.m. AEDT decision.
