Board members of the Reserve Bank of Australia discussed further lowering the cash rate as the outbreak of a novel coronavirus posed a "material near-term risk" to an economy already dented by ongoing bushfires, according to minutes of their February monetary policy meeting.
The outbreak acted as a "new source of uncertainty" just as the outlook for the global economy was stabilizing following an initial trade deal signed by the U.S. and China, the RBA's policymakers said. The outbreak and the effects of bushfires across the country are expected to weigh on domestic growth in the near term, they added.
"Lower interest rates could speed progress towards the bank's goals and make it more assured in the face of the current uncertainties," according to the minutes. The central bank, which aims to keep inflation within 2% to 3% and expects an unemployment rate of below 5% in the near term, ultimately decided to maintain its cash rate at 0.75% in February, citing "long and variable lags" in the effects of monetary policy on the economy.
In deciding to keep the rate unchanged, the RBA's policymakers discussed the risks carried by very low interest rates on resource allocation and on consumer confidence, the minutes showed. They also noted that a rate cut could encourage additional borrowing "at a time when there was already a strong upswing in the housing market."