Ahead of the G7 finance ministers and central banks conference call on Tuesday 3 March is the Reserve Bank of Australia policy meeting
We have heard comments from the Fed, BOJ, ECB and others on being prepared to take action, but we have had tumbleweeds from the RBA.
Maybe 'cause the meeting is today they've kept their mouth shut (blackout period and all). Or maybe its just another indication of their timidity.
A lot of banks yesterday switched to looking for a rate cut from the RBA today. Given how closely Australia's economy is intertwined with China's and the collapse in the Chinese PMIs a rate cut from the RBA seems a no brainer.
Some folks will argue rate cuts will be ineffective against the virus, which is the wrong argument, of course rate cuts won't cure a virus! Sheesh.
The central bank move, if it comes, will be predicated on taking action to avert too much economic harm. Some folks will argue that a rate cut will be ineffective for this, that government stimulus (fiscal) would be better, and they have a fair point … but you have to remember a rate cut is the tool available to the central bank, they can't provide fiscal stimulus. "The RBA should stand firm and force the government to act" is another argument. Unfortunately this is no time for dick swinging contests (its a male-dominated sphere) and the RBA will not play this game.
Like I said, given the interconnectedness of China and Australia economically and given the impact on China's economy a rate cut appears a no brainer. Against this is RBA timidity and their persistent (and persistently wrong) optimism.
The surveys of analysts are not unanimous for those expecting a cut, there are a few hold outs. Market pricing, on the other hand, is around 90% (down from yesterday) for a cut.
FWIW I think the RBA will bite the bullet and cut 25bps.
