Daily Commentary BY THE CURVE TEAM –

Risks Build Ahead of RBA’s Big Week

3rd of February, 2020

The fallout from the spreading Coronavirus continues to intensify, adding to the downside risks to the economic outlook.

As the infection rate from the Coronavirus continues to climb, governments around the globe are implementing increased containment measures. Lockdowns and travel bans are still in place in China with factories being closed and export orders being cancelled.

Australia has also increased its containment measures, and along with New Zealand has announced travel bans on people travelling from mainland China.

While Australia’s resource export story is a well known one, China is also one of our biggest service importers. The disruption to these services, namely education and tourism, as a result of the travel bans will undoubtedly impact activity over the months ahead.

How the Coronavirus impacts the outlook will be a key question for the RBA. They will have plenty of opportunities to provide much needed clarity on the outlook this week.

Tomorrow they will host their monthly board meeting, where the probability of a 25bp cut according to futures pricing sits at 20%. Governor Lowe will then address the Nation Press Club at a luncheon on Wednesday. He will then appear before the House of Representatives Standing Committee on Economics before releasing their latest forecasts in their quarterly Statement on Monetary Policy at 11:30.

As risks to the outlook build, and with the RBA still some way from reaching full employment and lifting inflation back to the target band, a near term rate cut can’t be completely ruled out.

David Flanagan

Director - Interest Rate Markets