RBA Minutes: The Board was prepared to ease monetary policy further to support the Australian economy

Reuters reports that Australia's central bank already viewed the spread of coronavirus as an "unprecedented" event at its policy meeting this month, and the worsening crisis has since prompted emergency liquidity injections and the promise of yet more easing:

Minutes of the March 3 meeting showed the Reserve Bank of Australia's (RBA) Board feared the virus would be a significant drag on economic growth and reacted by cutting the cash rate a quarter point to a record low of 0.5%.

The RBA has argued that cutting cash rates under 0.25% would be counter productive, but pulling yields down would at least lower borrowing costs across the economy.

Minutes of the March meeting showed policy makers were ready and willing to act.

"The Board was prepared to ease monetary policy further to support the Australian economy," the minutes showed.

Members also agreed it was important to "maintain contact" given the speed of events, suggesting they would consider moving before the next scheduled policy meeting on April 7.

A near-term containment of the virus was considered "very unlikely" and outweighed concerns that lower rates would fuel an unwanted explosion in borrowing to buy houses.

"There has been sharp falls in the prices of risky assets and markets were finding it difficult to price the risks, given their unprecedented nature," the minutes showed.

Key notes

• RBA Minutes: Board prepared to ease monetary policy further to support economy.
• RBA to ensure Australian financial system has sufficient liquidity.
• Board agreed importance of maintaining contact to assess impact of coronavirus.
• The extended period of low rates would be required.
• Board agreed coronavirus to have significant effect on economy.
• Very unlikely virus would be contained in near future.
• Q1 growth to be noticeably weaker than expected, hard to predict length of slowdown.
• Board welcomed government action on fiscal stimulus, combined policy response to help.
• Rate cut would work via lower a$, boosting cash flows to mortgage holders.
• Board judged risks of borrowing bubble not particularly high.
• Virus impact on tourism and education alone to cut Q1 GDP by 0.5ppt.
• Increasingly clear virus to cause major disruptions around the world.
• Noted steep falls in risky assets, hard to price risk given unprecedented event.

See the Minutes here.

AUD implications

AUD/USD is a touch weaker on the release of the Minutes. 

• AUD/USD Forecast: Slide set to continue despite oversold conditions

Description of RBA minutes

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.