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.

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