Australia’s central bank yesterday cut its interest rates to record lows in what is expected to be the first in a spate of policy stimulus around the world to fight the economic fallout from the COVID-19 outbreak.
It was the fourth reduction by the Reserve Bank of Australia in less than a year, bringing the cash rate to 0.5 percent amid mounting evidence momentum in the A$2 trillion (US$1.31 trillion) economy has stalled.
The coronavirus epidemic is having a “significant” hit on Australia’s economy and it is difficult to predict how large and long-lasting the effects would be, Reserve Bank of Australia Governor Philip Lowe said a short post-meeting statement.
The board “will continue to monitor developments closely and assess the implications of the coronavirus for the economy. The board is prepared to ease monetary policy further to support the Australian economy,” Lowe added.
The Australian tourism, transport, hospitality and retail sectors have been jolted by a travel ban on China since the start of last month.
Earlier, Australian Prime Minister Scott Morrison said his government was working closely with the central bank on a response to the coronavirus outbreak, adding that both were “highly aligned” in their understanding of the challenges before them.
Morrison also urged the nation’s biggest banks to lower their lending rates.
Commonwealth Bank of Australia and Westpac Banking Corp were quick to respond, reducing their variable home loan rates by 25 basis points.
Malaysia’s central bank yesterday also cut its benchmark interest rate.
Bank Negara Malaysia reduced the overnight policy rate for a second time this year, lowering it by 25 basis points to 2.5 percent, as forecast by 15 of 24 economists surveyed by Bloomberg.
The rate cut “is intended to provide a more accommodative monetary environment to support the projected improvement in economic growth amid price stability,” the central bank said in a statement.
Malaysia’s effort to shore up the economy amid fresh threats to growth takes the key interest rate to its lowest level since July 2010.
The policy easing follows a 20 billion ringgit (US$4.75 billion) fiscal stimulus package last week to counter the impact of the coronavirus outbreak.
The central bank said first-quarter economic growth would be negatively affected by the outbreak, especially the tourism and manufacturing sectors.
“Although domestic growth is expected to gradually improve in the second half of the year, there are key downside risks, mainly stemming from the evolving nature and prolonged impact of the COVID-19 outbreak, and continued weakness in commodity-related sectors,” it said.
The Malaysian government last week revised its economic forecast for this year to 3.2 percent to 4.2 percent, down from 4.8 percent previously.
It also widened the fiscal deficit target to 3.4 percent of GDP, from 3.2 percent.
The COVID-19 outbreak is plunging the world economy into its worst downturn since the global financial crisis more than 10 years ago, the Organisation for Economic Co-operation and Development warned on Monday, urging governments and central banks to implement measures to avoid an even steeper slump.
Additional reporting by Bloomberg
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