Interest rate drop?

It makes people feel better, its like giving someone a hug and telling them everything will be okay, they get their confidence back , even if you know deep down that the **** is going to hit the fan.
Even a 0.75% reduction is not going to make much difference and we are going to get months and months of bad news as the data flows through , interspersed with a little good news.
International tourism wil be the first real big loser and that affects people with short term rentals (airbnb) and the hotel industry.
In two months we will be down over a quarter of a million Chinese tourists, many other people in other countries especially in Asia and Europe will start delaying holidays for a year or so affecting forward bookings.

 

IMO the most interesting rate decision since the surprise 100bp call in Sep 08. Any of the three options are really on the table (cut, hold, double cut!).

COVID is a health related shock, its not like shooting interest rates down will bring much to activity when there's a massive fear of a virus pandemic going around (should help market confidence though). Lower rates aren't really the solution to this now and make people feel safe and spend. At least not right now. IMO economic activity factors are way outside anyones control now and the extent of damage will be tied to how bad the spread gets.

In times of massive uncertainty, the short term impact of something like this is a little more limited. Also the firepower in general is very limited to rely on massive monetary stimulus to avoid the inevitable short term blip.

So many options are on the table in terms of policy responses. I imagine this weekend, all the key economic policymakers pulled together to try and come up with a plan to address this. Emergency meetings...the last time they did this was in 08. So hard to plan for as well...as so much information is unknown yet (what happens if a large airliner calls ScoMo and says they are in trouble?!)

Very different crisis, with a very different response required though.

A targeted fiscal response is probably a better fit toolkit to handle economic disruption from this. Monetary responses likely required too at some point, but likely other than interest rates (shoring up liquidity, etc).

In 5+ years time, the eco nerds will be talking about activities & events that happen in late Feb/early March. Stories of Sep 08 are stuff of economic legend in the treasury/rba building. Tomorrow might just be another one.

 

In short, any knee jerk deep cuts in interest rates should be exploited ASAP bc when the air clears, we could see a restoration of the cash rate to a more sensible level?

 

In 7 years interest rates have gone only in one direction,and we could still not get them to normal levels, if tourism takes a really big hit unemployment will have a 7 or 8 in front of it .
Interest rates will certainly not be going up, unless the financial markets completely crap themselves and banks cannot access funds at really cheap rates.

 

Coming out the other side of this might feel very different. Huge demand for coal and iron ore from China, tourism bouncing back, the property market kicking back in to life (assuming it takes a pause soon), a sugar hit of deferred discretionary spending flowing through to retail, etc. It's not out of the question that interest rates might be restored back to current levels.

 

thats assuming china doesnt go into massive recession/depression with this virus triggering a deflation of the massive debt bubble. As i like to say Japan 2.0.

 

What are the chances of banks passing these cuts on?

 

I think .25 is a given.
It was looking likely on the back of the bushfires and now we have Corona just starting to kick off.

I’m calling back to back cuts.
Banks to pass on 1 full and a small percent of the next. As always some banks will go full pass on the first cut and others the next.

 

I am also calling two cuts, more conservative .25 on both occasions, March and April

What happens after this will be very much dependent on corona. I am not flying to Iran, Italy or China. Tassie next week, I think I am Ok

 

Yes if corona continues we may see property market go into free fall??

 

You just hope nobody from those countries tourist are going to Tassie next week on the same plane as you.
I am hyper-ventilating in my brown paper bag.

 

I believe one case of corona in Tassie, lets hope I don't bump into them. I guess they wont be at any wineries

 

Not sure, they've typically been reluctant to raise rates unless they can see inflation rising and have a reasonable degree of confidence in it - i.e. they will let it sink in before raising. I think that may be a while away. Not sure if the benchmark falls a bit if rates are so low though, perhaps. Its not what some of the other world central banks did though (they kept rates very very low for a while and then raised much slower than cutting them).

 

ANZ changes call, says RBA will cut this afternoon
Luke Housego

ANZ has reversed its call from yesterday, saying the Reserve Bank of Australia was likely to cut the cash rate by 25 basis points when it meets today.

On Monday, the bank said it was holding firm in its call that the RBA would remain unchanged in March despite acknowledging a cut was a very real possibility.

"Well informed media commentary suggests a rate cut is likely as part of a coordinated effort to stem the economic impact of the coronavirus," said ANZ head of Australian economics David Plank.

"In light of this, we’ve changed our call from on hold to a cut of 25 basis points."

17 of the 34 economists surveyed by Bloomberg are saying they expect the RBA will cut today.

Commonwealth Bank is the only one of the big four not forecasting a cut.

 

My concern is whether or not the banks will pass on the full cut to consumers.

Who's to say they won't just pass on a fraction of the cut and blame it on the virus or increased cost of doing business.

 

banks never like rate cut, it cut into their margin and lower their return on equity
so they always try to cling on to some cut or don't pass on at all but it will lower long term borrow cost for business if their rate is up for re-negotiation

 

look like world wide co-ordinate rate cuts is coming
no wonder the dow stage a 1300 point jump yesterday

G7 finance ministers and central bankers will hold a conference call early Wednesday morning AEDT - about 2.5 hours before Wall Street opens for trading.

Last time this happen is in 2011 and here is the outcome
Coordinated central bank action to address pressures in global money markets

 

Let the market crash and reset.

 

Yes they have more insight than me.
But you didn't.

0.25 it is not 0.50 guru

 

Statement by Philip Lowe, Governor: Monetary Policy Decision
Number2020-06
Date3 March 2020
At its meeting today, the Board decided to lower the cash rate by 25 basis points to 0.50 per cent. The Board took this decision to support the economy as it responds to the global coronavirus outbreak.

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. Prior to the outbreak, there were signs that 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. 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.

Long-term government bond yields have 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. 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. Australia's financial markets are operating effectively and the Bank will ensure that the Australian financial system has sufficient liquidity.

The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors. The uncertainty that it is creating is also likely to affect domestic spending. As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected. Given the evolving situation, it is difficult to predict how large and long-lasting the effect will be. Once the coronavirus is contained, the Australian economy is expected to return to an improving trend. This outlook is supported by the low level of interest rates, high levels of spending on infrastructure, the lower exchange rate, a positive outlook for the resources sector and expected recoveries in residential construction and household consumption. The Australian Government has also indicated that it will assist areas of the economy most affected by the coronavirus.

The unemployment rate increased in January to 5.3 per cent and has been around 5¼ per cent since April last year. Wages growth remains subdued and is not expected to pick up for some time. A gradual lift in wages growth would be a welcome development and is needed for inflation to be sustainably within the 2–3 per cent target range.

There are further signs of a pick-up in established housing markets, with prices rising in most markets, in some cases quite strongly. Mortgage loan commitments have also picked up, although demand for credit by investors remains subdued. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality. Credit conditions for small and medium-sized businesses remain tight.

The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target. The Board therefore judged that it was appropriate to ease monetary policy further to provide additional support to employment and economic activity. It will continue to monitor developments closely and to assess the implications of the coronavirus for the economy. The Board is prepared to ease monetary policy further to support the Australian economy.