RBA flagged virus disruption

March minutes canvassed worst-case scenarios

THE Reserve Bank of Australia anticipated virus-related workplace disruptions and social isolation measures well before it pumped cash into the economy and flagged further policy easing to fight deteriorating conditions.

The central bank also a fortnight ago considered a scenario where the COVID-19 outbreak would be contained in the “very near future” and where there would be a rapid recovery in economic activity – but scrapped that outcome as very unlikely.

Minutes from the RBA’s monthly meeting on March 3 showed board members noted the increasing chance that COVID-19 would cause major economic disruption around the world, including probable social distancing and workplace disruption as people shun regular spending patterns in fighting the spread of the outbreak.

The bank cut the cash rate to a record low 0.5 per cent this month in a bid to buttress the economy against the mounting toll of the virus and indicated it was willing to act further.

Already this week the RBA has pumped billions into the financial system and indicated further stimulus could be revealed tomorrow as financial markets plunge.

It is expected that the RBA will bring forward April’s 0.25 per cent cut, while governor Philip Lowe will also outline how the RBA will approach quantitative easing, in which it would purchase government bonds to keep a lid on long-term yields.

In February, the RBA noted it was too early to determine the extent to which Chinese and global economic growth would be affected by the coronavirus outbreak, and even tipped modest improvement ahead.

The March meeting minutes – released yesterday – show the RBA was already expecting the probability that people would seek to avoid gatherings, including public transport and perhaps workplaces.

Board members noted the education, transport and tourism sectors were already being battered and household spending and business investment would likely sag in coming months.

The board observed GDP growth in the March quarter was likely to be noticeably weaker than previously expected, and it was difficult to predict how long it would take for the economy to return to usual levels of activity.

The predicted 0.5 per cent hit to GDP in the March quarter does not even include the possible effects on domestic activity of supply chain disruptions and public health safety interventions to reduce the likelihood of transmitting COVID-19.

Members also noted the virus would likely delay the already glacial progress Australia was making towards its employment and inflation targets.