The Reserve Bank of Australia (RBA) cut interest rates by 25 basis points to a record low of 0.5% to curtail the economic impact of the coronavirus crisis. This follows the news that the Australian stock market fell by more than $200 billion as investors have withdrawn their money from volatile markets and placed it in more “traditional safe havens”, such as gold.
Interest rates were already lowered three times in 2019 after a downturn in the residential construction market. After combating the bushfire crisis for the entire summer, the treasury said Australia’s economic growth would fall by another 0.2%. Now, the coronavirus threatens even greater economic losses.
The Organization for Economic Cooperation and Development (OECD) predicts that even a “mild and contained” coronavirus outbreak would dent Australia’s economic growth by 0.5% this year. However, if the situation worsens, with multiple indicators suggesting that it will, research suggests that the GDP could contract by as much as 7.9% with a 2% loss in economic growth in 2020.
The RBA says that the virus outbreak has severely impacted the education and travel sectors and is likely to affect consumer spending. Australian Prime Minister Scott Morrison called on Australia’s major banks to follow suit in supporting Australians through these tough times.
Soon after Morrison’s statement, Westpac lowered rates on variable home loans, “cash-based” small business loans, and overdrafts by 25 basis points. The Commonwealth Bank, too, said that it would reduce variable mortgage rates by 25 basis points. The National Australia Bank (NAB), too, lowered variable home and small business loan interest rates by 25 basis points.
Hence, Australia continues to reel from last year’s housing downturn, this summer’s bushfire crisis, and the ongoing coronavirus outbreak as low investor and consumer confidence have sent its economy into a tailspin.
Image Source: Bloomberg