The minutes of the RBA’s meeting this month, at which official interest rates were held steady at 0.75 per cent, show the virus is weighing on the bank’s expectations about the economy.
“While it was too early to tell what the overall effect would be, the outbreak presented a material near-term risk to the economic outlook for China and for international trade flows, and thereby the Australian economy,” the minutes said.
Financial markets expect the RBA to cut rates to 0.5 per cent by the second half of the year.
The minutes showed board members debated a rate cut this month, noting current rate settings meant the bank would make only “gradual” progress towards reducing unemployment and lifting inflation.
But it also has concerns another cut may fuel the strong increase in house prices in most capital cities in recent months while people dependent on savings would take another hit to their spending plans.
“Internationally, concerns had been raised about the effect of very low interest rates on resource allocation in the economy and their effect on the confidence of some people in the community, notably those reliant on savings to finance their consumption,” the minutes showed.
The bank’s next move will depend on the strength of the jobs market, with figures to be released this week expected to show a moderation in employment. The RBA noted while the total number of jobs was growing, all new jobs in the past three months were part time.
There are some early signs of the impact of the December bushfires on the NSW tourism market.
The Australian Bureau of Statistics reported international tourist numbers to NSW in December were 15,000, or almost 4 per cent, down on the same period in 2018. Every other state reported an increase in tourist numbers in the month.
And there were already signs of softness in the Chinese tourist market before the coronavirus outbreak. The number of Chinese tourists to Australia were down by 0.5 per cent in December compared to the previous month, and by 0.9 per cent over the full year.
Commonwealth Bank’s measure of household spending intentions also shows the virus and fires are starting to have an impact.
Spending plans on travel and education have been heavily discounted by Australians in recent weeks. Travel intentions are at their lowest on record in the CBA survey.
But cuts in interest rates are boosting plans for spending on new homes and, importantly, in the new car market, which has been struggling for more than two years.
CBA chief economist Michael Blythe said the economy appeared to need more support.
“Policy stimulus from interest rate cuts and tax rebates has failed to deliver the expected boost, outside of the housing market,” he said. “This will eventually assist consumer spending. But this is the long game for an economy that could do with a boost right now.”
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.