(Australian Associated Press)
The Reserve Bank of Australia has held the cash rate at a record low 0.75 per cent and had “surprisingly” little to say about the headwinds presented by the catastrophic summer bushfires and coronavirus crisis.
The central bank board’s first interest rate decision for 2020 was to delay cutting to a fresh record low 0.5 per cent, with RBA Governor Philip Lowe citing improved unemployment figures for December in his announcement.
The unemployment rate edged lower in December to 5.1 per cent – where Dr Lowe expects it to remain “for some time” before gradually declining to a little below 5.0 per cent in 2021.
Market expectations of a February cut had evaporated from rusted-on certainty in October to an outside chance following a bump in quarterly inflation and improved employment figures last week.
Disappointing third-quarter GDP figures, underwhelming retail data, a bushfire emergency and the outbreak of the coronavirus have added pressure since the board’s December meeting, with economists expecting the RBA to downgrade its forecasts accordingly in Friday’s Statement on Monetary Policy.
But BIS Oxford chief economist Dr Sarah Hunter noted the board provided little insight to the looming economic impact of the summer bushfires and coronavirus outbreak.
“Surprisingly the board had very little to say about the impact of the bushfires and the coronavirus outbreak, other than to say that it’s not possible at this stage to know the full impact of the virus,” Dr Hunter said in a note on Tuesday.
The Australian dollar climbed from 66.85 US cents to 67.14 US cents within five minutes of the RBA’s 1430 AEDT decision on Tuesday.
Ernst and Young chief economist Jo Masters said despite encouraging domestic data in recent weeks – and RBA expectations that growth will be stronger this year than last – it was too early to be confident about signs of a “gentle turning point” in the economy.
KPMG chief economist Dr Brendan Rynne said the RBA was, on balance, correct to hold rates.
“But it must have been a tough call,” Dr Rynne said on Tuesday.
“Even before the twin perils of coronavirus and bushfires are factored in, the Australian economy had been performing relatively poorly, compared with recent history.”
The RBA last cut the cash rate in October, the third of three cuts in 2019 in a bid to eat into labour market slack and kick-start a flagging economy.
As in previous statements, Dr Lowe left the door open for further cuts and “an extended period of low interest rates”.