RBA tries to stem coronavirus panic, impact to economy "uncertain" beyond March

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on March 11, 2020
RBA tries to stem coronavirus panic, impact to economy

Photo by tam wai on Unsplash

The Reserve Bank says it's too early to speculate what impact the coronavirus will have, but accepts it will be a "difficult period" for the Australian economy.

Appearing before the Australian Financial Review Business Summit in Sydney on Wednesday morning, RBA deputy governor Guy Debelle said the virus has "significantly disrupted" the momentum of the global economy, but that the rapidly evolving nature of the virus means it's simply too early to know what the full impacts will be.

"The conclusion is that the global economy will be materially weaker in the first quarter of 2020 and in the period ahead," Dr Debelle said.

"Clearly we are still only in the early weeks of March, so the picture can change from here.

"It is just too uncertain to assess the impact of the virus beyond the March quarter."

Dr Debelle was expected to talk about investment at the summit but instead spoke about the RBA's economic outlook as the coronavirus, or Covid-19, tightens its grip on the economy and spooks consumers.

On Monday, the ASX crashed below 6,000 points, with $140b wiped off in its worst day since the global financial crisis. 

"There has been a large increase in risk aversion and uncertainty. The virus is going to have a material economic impact but it is not clear how large that will be," Dr Debelle said.

"That makes it difficult for the market to reprice financial assets."

But he said the banks are well placed to handle the market disruption.

"The Australian banking system is well capitalised and is in a strong liquidity position. The Australian banks had raised a significant amount of wholesale funding before the disruption to markets and deposit inflows are robust."

"They are resilient to a period of market disruption."

Rate cuts could cushion coronavirus blow to economy

Last week, the RBA cut the official cash rate to 0.50% in response to the coronavirus outbreak, a decision that came at the eleventh hour.

Dr Debelle said the interest rate cut will give households more disposable income, which he believes will eventually be pumped back into the broader economy.

"Lower interest rates will provide more disposable income to the household sector and those businesses with debt. They may not spend it straight away, but it brings forward the day when they will be comfortable with their balance sheets and resume a normal pattern of spending," he said.

"Monetary policy also works through the exchange rate which will help mitigate the effect of the virus' impact on external demand."

Thinking about refinancing to a low-rate, variable owner-occupier home loan? The table below displays home loans with some of the lowest-rate variable home loans currently on the market for owner occupiers:

Lender
Advertised rate Comparison rate* Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
FixedMore details
NO UPFRONT OR ONGOING FEES

Basic Home Loan Fixed (Principal and Interest) (LVR < 70%) 3 Years

NO UPFRONT OR ONGOING FEES
FixedMore details
  • Easy, digital application process
  • Market leading app to help you pay off your loan sooner
  • No on-going fees
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
ZERO APPLICATION FEESFEE FREE OFFSET

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
ZERO APPLICATION FEESFEE FREE OFFSET

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Variable Owner Occupied, Principal and Interest (Refinance Only)(LVR <75%)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.
REFINANCE IN MINUTES, NOT WEEKS

Variable Owner Occupied, Principal and Interest (Refinance Only)(LVR <75%)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of January 26, 2022. View disclaimer.

Later this week, the Morrison government is expected to announce its coronavirus stimulus package that it hopes will stave off a recession. 

Dr Debelle said the stimulus package, combined with the rate cuts, will give the economy a much needed boost.

"The Government has announced its intention to support jobs, incomes, small business and investment which will provide welcome support to the economy," Dr Debelle said. 

"The combined effect of fiscal and monetary policy will help us navigate a difficult period for the Australian economy.

"They will also help ensure the Australian economy is well placed to bounce back quickly once the virus is contained."

But not everyone is as optimistic: Earlier in the week, Westpac chief economist Bill Evans said Australia will be in a recession by the end of the year.

"The Australian economy is forecast to contract by 0.3% in the March quarter and the June quarter in 2020," Mr Evans said. 

"Growth in the second half is forecast to lift by 2.2%. This constitutes a technical recession, although with the expected recovery the unemployment rate is unlikely to lift much above 6%."

Mr Evans also said there is "much greater uncertainty around these forecasts due to the unpredictable course of the outbreak".


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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author-avatar
Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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