RBA deputy governor, Debelle: Coronavirus causing large increase in risk aversion, uncertainty

The Reserve Bank of Australia deputy governor, Debelle, says coronavirus causing large increase in risk aversion, uncertainty.

Key statements

• Says lower interest rates to help offset demand shock from virus.
• Says recent fall in a$ will provide a helpful boost to economy.
• Says government stimulus package will provide welcome support to economy.
• Combined fiscal and monetary policy will help navigate a difficult period.
• Says the effect of the virus will come to an end at some point.
• Repeats impact of virus on tourism, education to take 0.5ppt from Q1 GDP.
• Says too uncertain to assess impact of the virus beyond march quarter.
• Australian banking system well capitalised, in a strong liquidity position.
• Have not seen any particular sign of pressure in our daily market operations.
• Liaison indicates no material disruption to exports of iron ore and coal at this stage.
• Says global economy will be materially weaker in Q1 and period ahead.
• China very focused on getting its economy back to full output.
• Monetary policy still works.
• Impact of exchange rate clearly still works.
• There are scenarios where we would have to consider QE.
• Would consider forward guidance and keeping bond yields down.
• Would aim to keep yields low rather than set a target for bond buying.
• Not a lot of stress in money market at present.

FX implications 

AUD/USD has been on the backfoot since yesterday's disappointment in the NAB Business Survey and while the US dollar has taken back to the top spot n the FX board. There is nothing in here pertaining to immediate drastic measures but the market is pricing in around a 100% chance of a 25bp cut at the next RBA meeting on 7 April which is likely to continue to weigh on AUD.

• AUD/USD: Under pressure around 0.6500 amid broad US dollar strength