Just a week ago, you’d have received some pushback if you said you were certain the RBA would cut rates on Tuesday.
But, by the time the March meeting actually rolled around, a cut was fully priced by the market on the heels of a disastrous week for global equities occasioned by acute concerns about the economic fallout from the coronavirus epidemic. To say traders are pricing in an aggressive monetary policy response would be an understatement.
The new week kicked off with yields in Australia plunging to record lows, and the bank did, in fact, deliver on Tuesday, with a 25bps cut.
The RBA said it’s prepared to ease further if conditions warrant, and said global growth in the first half will be lower than previously expected.
This comes on a day when South Korea reported hundreds of additional virus cases, underscoring the threat to the region. Moon Jae-in said his nation is “at war” with the disease and described a “grave” threat to the domestic economy.
The BOK refrained from cutting rates in favor of more targeted measures. That, in hindsight, could prove to be a mistake. The country’s infection total is now 4,812.
Australia has 34 cases and at least one death.
Meanwhile, the BoJ conducted an unscheduled repo operation for a second consecutive day. This time around, the operation was undersubscribed. The bank again offered 500 billion yen, but allotted just 150 billion. Monday’s op was fully subscribed with bids of 571 billion yen.
Some say the BoJ’s actions are more about signaling than anything else. “It’s an act to show [the] stance”, of policy, Souichi Takeyama, a rates strategist at SMBC Nikko Securities in Tokyo said Tuesday, adding that “by buying up ETFs, the BOJ also signaled it will use options other than cutting rates, leading some players to unwind such expectations”.
Amusingly, it’s at least possible that market participants will view the RBA’s cut as too little, and the BoJ’s liquidity ops as meaningless, underscoring just how high the bar now is for policymakers headed into Tuesday’s conference call between G-7 finance ministers and central bankers.