RBA cuts cash rate to “lowest possible” 0.25% during emergency meeting

• • • • RBA cuts cash rate for second time in a month in light of the global impact of coronavirus
      • More than 5.2 million say they are unprepared for sudden job loss
      • 45% of Australians don't think they could last a month off their savings if they lost their jobs

19 March 2020, Sydney, Australia – Taking emergency action in response to faltering global and domestic markets and rate cuts around the world, the Reserve Bank of Australia (RBA) lowered the cash rate to an all-time low of 0.25% today.

The decision comes as the pandemic COVID-19 continues to wreak havoc on commerce around the world.

With an out-of-cycle cut potentially on the cards, Finder conducted an unscheduled Finder RBA Cash Rate Survey™ this week, polling 15 experts and economists about the movement of the cash rate and the ASX 200, among other things.

Around half of the economists who responded to the last-minute survey (53%, 8/15) expected the RBA to make an emergency cash rate cut this week.

The ABS published unemployment figures this afternoon as 5.1% in February 2020 (seasonally adjusted). This is down from 5.3% in January, but up slightly from a year ago in February 2019 (5.0%).

Graham Cooke, insights manager at Finder, said the cut was prudent in these unprecedented times.

"After the US cut its rate by 100 basis points and New Zealand cut by 75 this week, it was inevitable that the RBA followed suit.

"The problem is that, after 5 cuts in the last 12 months, the RBA has far less room for stimulus than those other central banks.

"The RBA has said they do not intend to ever cut below 0.25% – so this really is our lowest possible rate.

"Savings gains will be virtually wiped out, but borrowing is about to become even cheaper than its already rock-bottom cost.

"Of course, people have little reason to borrow if they're stuck at home, so these stimuli may have nothing to stimulate."

Cooke said the RBA cut will lessen the damage, but there is really only one thing that will appease the market.

"The only silver bullet at this stage is news of a successful vaccine trial.

"Even though it will still be several months to market, rest assured world governments will pump as much money into the process as possible.

"What's making markets so uncertain right now is that nobody knows when this will end, a vaccine could at least represent light at the end of the tunnel." Cooke said.

Finder's Consumer Sentiment Tracker

Surveying more than 11,000 Aussies, Finder's Consumer Sentiment Tracker has tracked consumer confidence and concern monthly since May 2019.

According to the results, 45% of Australians don't think they could last a month off their savings if they lost their jobs tomorrow, while 26% of Australians have less than $100 in savings.

Nearly a third (29%) are struggling to pay their rent or mortgage, up from 25% in February.

Cooke said consumers should do what they can to prepare for these uncertain times.

"Now is the time to cut down on unnecessary spending and maximise savings wherever you can.

"If you are feeling overwhelmed, creating a COVID-19 checklist can help you feel more in control.

"Don't panic if you are unable to do everything on your list. The main focus is to focus on your health – both mental and physical – and hygiene. Anything else is just a bonus."

Why experts predicted a cut

Economist Mark Crosby of Monash University expected the month's second cut in order to keep Australia in working order.

"Businesses cannot function without a workforce while still paying rent and interest.

"The RBA and government need to do what it takes to get these costs closer to zero," Crosby said.

Other expert commentary on why the cut was needed:

Nicholas Frappell, ABC Bullion:

• "I believe that they will cut as part of an internationally coordinated effort to combat the economic effects of coronavirus, with the added element of Australia's exposure to tourism and the Chinese economy."

Malcolm Wood, Baillieu:

• "Co-ordinated global easing and liquidity support."

David Bassanese, BetaShares:

• "Case to cut [is] so strong [that there is] no reason to wait."

Craig Emerson, Craig Emerson Economics:

• "To follow other central banks."

Dr Andrew Wilson, My Housing Market :

• "The RBA needs to keep the AUD competitive as global rates are cut – and to act expeditiously to bolster local confidence in clearly uncertain times. A 25 basis point cut, however, would be prudent allowing some scope for another cut perhaps on April 7. Although rate cuts are unlikely to impact confidence in the short term, they will assist in medium-term recovery. Existing near-zero rates, however, will temper the impact of cuts with fiscal policy now clearly the main game. Fiscal policy stimulus should be directed to untapped demand in the property sector – first home buyer grants as per Rudd in 2009 and Hawke 1983 – and initiatives to ease finance constraints on property development and investors."

Jonathan Chancellor, Property Observer:

• "Every little bit will help as we struggle to cope with the coronavirus and the looming recession."

Noel Whittaker, QUT:

• "Everybody else is [cutting, the RBA] don't have much option."