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Interest rates in Australia could be cut to their limit this week, as the RBA tries to control the impact of the coronavirus

Jack Derwin
  • Interest rates could sink to 0.25% on Thursday, as the Reserve Bank of Australia (RBA) desperately cuts.
  • It comes after the US cut interest rates by 1% overnight and expanded its QE program by $1.13 trillion.
  • The RBA now looks destined to follow suit on both fronts, according to economists.
  • Visit Business Insider Australia's homepage for more stories.

Here we go again.

After the Reserve Bank of Australia (RBA) declared it would unleash quantitative easing (QE) this week, pundits expect the official interest rate to be slashed one final time on Thursday, weeks ahead of schedule.

"As a result of today’s announcement we expect the RBA to cut the cash rate to 0.25% on Thursday," Commonwealth Bank chief economist Gareth Aird said in a statement issued to Business Insider Australia.

It comes after the US Federal Reserve surprised the market with an early 1% rate cut of its own. It's the reason David Bassanese, chief economist for ETF provider Betashares, joins Airth in saying there's now "a very good chance" that an RBA rate cut will be announced weeks before its scheduled April meeting.

"The Fed rate cut was widely expected this week and it has decided not to wait. But hopes that this might boost market confidence appear to have backfired, with US futures weakening so far this morning," Bassanese said. "If anything, the Fed's early move has denied the market the chance to enjoy a further bear market rally ahead of the expected decision Wednesday morning."

While that disruption continues to play out, central banks around the world are grappling with how to contain the economic impact of the coronavirus.

Again, the US Fed led overnight in expanding its own QE program by $1.13 trillion overnight. The RBA played catch up on Monday saying it "stands ready" to begin its own program by which it would buy government bonds to increase the money supply. Again, Thursday should be when more details are released.

"We also expect the RBA to announce the details of an asset purchase program – quantitative easing – that will involve purchasing Australian Commonwealth Government Bonds," Airth said. "We expect the RBA to set target levels for [bond] yields as opposed to announcing an intention to purchase a specified quantity of bonds."

While the RBA has repeatedly stated it is prepared to implement QE, it has also indicated it would only do so if necessary and with interest rates at their "effective lower bound" or 0.25%.

A rate cut on Thursday thus seems all but announced.