SYDNEY (Reuters) – The full impact of the coronavirus outbreak on Australia’s economy was still uncertain but the combined effect of fiscal and monetary policy would support activity in the meantime, a top central banker said on Wednesday.
Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle said the bank would consider unconventional policy should interest rates be cut by a further quarter point to an effective floor of 0.25%.
The RBA has already slashed rates by 100 basis points since last June to a record low 0.5%. Financial markets <0#YIB:> are pricing in another cut to 0.25% as soon as next month.
Debelle said, under quantitative easing, the bank would aim to keep bond yields low by buying government debt as needed, rather than setting a monthly target for the amount bought.
Analysts have been wondering whether the RBA would chose a form of “yield curve control” as used by the Bank of Japan, or set targets for how much bonds would be bought as some other central bank have.
Debelle noted the Australian economy had been on the mend until the coronavirus hammered the tourism and education sectors. The central bank estimates the impact on those two sectors alone would reduce March quarter economic growth by half a percentage point.
Analysts fear the economy will shrink in the quarter, raising the risk the country will suffer its first recession since 1991.
Yet, Debelle hoped lower interest rates and a package of government stimulus measures due to be announced on Thursday would help cushion the blow.
“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,” Debelle said in a speech.
The virus has infected more than 116,000 people worldwide with over 4,000 deaths since it surfaced in China late last year, according to the World Health Organization.
It has spread to more than 100 nations, hitting travel and tourism, disrupting supply chains and causing carnage in global financial markets.
“The conclusion is that the global economy will be materially weaker in the first quarter of 2020 and in the period ahead,” Debelle said.
The RBA is also gathering information on supply chain disruptions through their business liaison program.
“Clearly we are still only in the early weeks of March, so the picture can change from here,” he said.
“It is just too uncertain to assess the impact of the virus beyond the March quarter.”
(Reporting by Swati Pandey, Wayne Cole; Editing by Lisa Shumaker and Sam Holmes)
