The Reserve Bank of Australia has today made the decision to cut the cash rate to a record low of 0.5 per cent. Widely anticipated and expected, the decision was made in response to the economic effects of the coronavirus.
The rate has come down from the 0.75 per cent rate which was announced last October; since then, it has been held, despite several meetings to potentially make further cuts.
RBA governor, Phillip Lowe, said that now has been the time to cut the cash rate due to the worse-than-expected hit from the virus outbreak and the predicted outcomes in the near future.
Dr Lowe said that his previous estimation regarding the “gentle turning point” in the Australian economy was now under a cloud caused by the virus.
In his statement after the bank’s March meeting a few hours ago, he said, “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.”
Australia’s interest rate had been lowered three times, eventually landing at 0.75 per cent last year, in an attempt 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 14:30 AEDT decision.
Prushka Fast Debt Recovery CEO, Roger Mendelson, disagrees with the RBA’s decision saying that “this rate cut decision will not impact small business lending as SME finance comes from sources that won’t pass on the rate drop.”
He added, “Realistically this decision will not stimulate consumer spending, and it will only fuel the rise in house prices we are already seeing in our main cities.”
