Coronavirus: Australian interest rates cut to historic lows

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In the climate of uncertainty that the coronavirus epidemic weighs on the economy, the Australian central bank has taken action. The Reserve Bank of Australia (RBA) announced on Tuesday that it will lower its key rate from 0.75% to 0.50%, its lowest level in history. The expansion of the coronavirus “obscures” the horizon of world economic conditions and has a “significant impact” on the Australian economy, justified the governor of the RBA, Philip Lowe.

Given the “still evolving situation, it is difficult to predict how large the impact will be, how long it will last”, but “once the epidemic is contained, the Australian economy should resume its upward trajectory”, he continued. To date, 31 cases of Covid-19 contamination have been confirmed in Australia, one of which has led to one death.

Dependence on China

The Australian economy is closely linked to that of China, the cradle of the epidemic: Beijing is Canberra’s main trading partner and the main source of its export earnings (30.6%). Several sectors of the Australian economy, very dependent on this country, are already severely penalized by the epidemic, such as education, tourism and fishing. China is also the main outlet for Australian mineral resources.

The RBA had already lowered its key rate three times since June 2019, in the face of the persistent gloom in the local economy and sluggish growth. The huge devastating fires – which devastated 20% of Australia’s forests between September and January – also struck a blow to the tourism sector.

The Australian decision comes as other central banks in G20 countries are spreading reassuring messages about the spread of the virus. G7 central bankers and finance ministers are scheduled to speak on the phone on Tuesday to coordinate their response to the impact of the epidemic.

Already last Friday, the president of the American Federal Reserve (Fed) had assured that the institution stood ready to intervene if necessary. Monday evening, the President of the European Central Bank (ECB), Christine Lagarde, also announced that she was “ready to take the appropriate measures”.

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