What the RBA governor had to say about today's emergency rate cut

The RBA cut the cash rate to 0.25% earlier this afternoon while announcing a raft of measures to prop up the coronavirus-stricken economy.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The RBA cut the cash rate to 0.25% earlier this afternoon while announcing a raft of measures to prop up the coronavirus-stricken economy. The health crisis has quickly turned into a financial crisis with the S&P/ASX 200 Index (ASX: XJO) plummeting over 30% from February highs. 

The rapidly evolving situation has caused severe volatility in financial markets as the global economy teeters on the edge. Travel restrictions and social distancing requirements have left many businesses reeling. Small businesses and those with high financial leverage or fixed costs are particularly vulnerable. 

"Our economy and financial markets will recover"

This afternoon, RBA Governor Philip Lowe told the market, "we are clearly living in extraordinary and challenging times." While primarily a public health issue, the coronavirus has become a major economic problem. "Our communities and financial markets are having trouble dealing with a risk they have never seen before," Lowe said. 

Nonetheless, Lowe told reporters, "It is important we don't lose sight of the fact we will get through this and our economy and financial markets will recover." Although Australia is facing a very serious situation, it is temporary. To help get to the other side, the RBA and government are building a bridge in the form of monetary and fiscal measures.   

The latest cut to the cash rate brings the cumulative declines over the past year to 1.25%. This is substantial and is boosting the cash flow of households and businesses. Central Banks in Australia, New Zealand, the US and the UK have now all effectively cut cash rates to 0.25%. 

Lowe said that rates are likely to be at current levels for some time. Before the virus hit, Australia was expecting to make progress towards the full employment target, but this objective will now take longer to hit. Significant job losses are anticipated, Lowe warned, but a recovery is expected once the virus is contained. When recovery does come, it will be supported by a low level of interest rates, which will be maintained until job and inflation rate objectives are firmly in sight. 

How the government and RBA are supporting the economy 

The RBA's major focus is to support jobs, incomes, and businesses so that when the crisis recedes, the country is well placed to recover. The Federal Government has so far announced $17.6 billion in coronavirus relief and is set to announce additional measures imminently. 

Thus far, one-off stimulus payments of $750 apiece have been announced for low-income Australians, while small and medium-sized businesses will receive up to $25,000 to cover the cost of employee wages and salaries. 

The government has allocated $3.9 billion in incentives to encourage businesses to spend, as well as wage subsidies for apprentices. A $1 billion fund has been established to support regions most severely affected by the outbreak, such as those that rely on tourism for income. Relief measures for airlines valued at some $715 million have also been announced

The Government and Reserve Bank are working in tandem to support the economy and help businesses survive the next few months.  The scale and effectiveness of their actions will largely dictate the speed and size of a recovery. Although unemployment is forecast to increase to 7% this year, Australia is in a stronger position than many countries to respond to the current crisis. 

Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Three healthcare workers look and point at at medical image
Share Market News

Pro Medicus shares surge 10% to crack $300 as healthcare leads ASX 200 sectors

Pro Medicus shares just keep on going, rising 625% over the past three years.

Read more »

Magnifying glass in front of an open newspaper with paper houses.
Share Market News

How did ASX REITs vs. residential property investment perform in FY25?

We review the share price growth of the largest ASX REITs vs. residential property investment in FY25.

Read more »

A man and woman sit next to each other looking at each other and feeling excited and surprised after reading good news about their shares on a laptop.
Broker Notes

These ASX 200 shares could rise 55% to 65%

Analysts think these shares are dirt cheap at current levels.

Read more »

Young man with a laptop in hand watching stocks and trends on a digital chart.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

a man sits at his desk wearing a business shirt and tie and has a hearty laugh at something on his mobile phone.
Broker Notes

Why DroneShield, Nickel Industries, and CSL shares could be best buys

Let's see why Bell Potter is so bullish on these shares.

Read more »

A group of executives sit in front of computer screens in a darkened room while a colleague stands giving a presentation with a share price graphic lit up on the wall
Opinions

2 ASX 200 large-cap shares that this fundie is cashing in after phenomenal growth

Shaw and Partners portfolio manager James Gerrish says he knows this will be an 'unpopular call'.

Read more »

Animation of a man measuring a percentage sign, symbolising rising interest rates.
Share Market News

Here's what Westpac says the RBA will do with interest rates next week

Are interest rates heading lower again? Let's find out what the banking giant is predicting.

Read more »

A handsome smiling man sits in the front seat of an electric vehicle with his hands on the wheel feeling pleased that the Carsales share price is going up and the company will shortly pay its biggest dividend ever
Share Market News

Are electric vehicle stocks a good investment today?

Did US President Trump just kill the EV industry?

Read more »