Coronavirus forces RBA’s hand

March 03, 2020

The Reserve Bank of Australia (RBA) has today decided to cut the nation’s official cash rate by 25 basis points, taking the cash rate to a new historic low of 0.50%.

Mortgage Choice Chief Executive Officer, Susan Mitchell said, “Today’s decision marks what could be seen as a coordinated move by central banks around the world as markets speculate that the US Federal Reserve and the European Central Bank are also expected to ease monetary policy in an attempt to shield economies from the effects of Covid-19.

“A global share market rout saw European, Japanese, US and Australian share markets fall last week. The Australian dollar plunged and with the global count of Coronavirus cases spreading globally, the current volatility shows no sign of abating. 

“Putting the recent developments aside, it’s important to point out that the outlook for the Australian economy was not exactly rosy. A number of key economic factors have been building the case for the RBA to cut the cash rate today,” said Ms Mitchell. 

In the minutes of its February monetary policy meeting, RBA board members stated they were prepared to ease monetary policy further to support full employment and achieve the inflation target. 

According to the Australian Bureau of Statistics (ABS), the nation’s unemployment rate rose 0.2% in January to 5.3%, reversing the unexpected improvement the month prior. The ABS also revealed that the wages remain subdued and inflation is far off the RBA’s target range of 2-3%, on average, overtime. 

The current state of the economy may be taking a toll on consumer outlook. The Westpac Melbourne Institute of Consumer Sentiment revealed that despite a modest improvement over the month of February, sentiment remains weak overall. The Index revealed easing concerns around bushfires despite some significant negative developments, most notably the coronavirus outbreak.

According to CoreLogic’s Hedonic Home Value Index, national dwelling values surged 1.1% over February, with five of Australia’s eight capital cities reaching a new record high. The rebound in housing values is being supported by record low home loan interest rates and improved borrowing capacity. 

Ms Mitchell said, “The RBA’s decision to lower the cash rate once again is unlikely to be passed on in full to borrowers. However a record low cash rate means a sustained period of low interest rates will continue to stimulate the housing market, worsening housing affordability in the nation’s largest markets, Sydney and Melbourne. 

“The current low rate environment makes now an ideal time for those looking to enter the property market to put their plans in action. Equally, if you are a borrower who hasn’t had your home loan reviewed in the last two years or more, you may want to take this opportunity to make an appointment with your local mortgage broker to see if you could access a more competitive home loan,” concluded Ms Mitchell.