RBA: The coronavirus cut – TDS

The RBA became the first developed market Central Bank to cut in response to the coronavirus and paves the way for other Banks to ease over coming weeks, explains Prashant Newnaha, Senior Asia-Pacific Rates Strategist at TD Securities (TDS).

Key quotes:

“The Bank indicated the outbreak is having a significant effect on the Australian economy, that Q1 growth is likely to be noticeably weaker than expected earlier, but is unaware how large and long-lasting the effect will be.”

“The Statement makes clear that there is expectation of further stimulus over coming months in most economies. The RBA's focus on offshore central bank developments therefore implies this is not the end of the RBA easing cycle, even if fiscal support is forthcoming.”

“We expect the RBA to cut next month to 0.25%. The prospect of further easing/ negative virus headlines should cap yields at 0.55% in 3yrs and 0.85% in 10s, the curve disposed to further flattening.”