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It is anticipated banks across the world could cut interest rates this week to spur consumer spending.
The Reserve Bank of Australia (RBA) cut interest rates to 0.50 of a percentage point in response to the economic slowdown following the spread of the coronavirus (COVID-19).
The impact of the virus around the world rocked sharemarkets last week, as the Dow Jones had its worse week since the 2008 global financial crisis.
Australia was not sheltered, as the ASX 200 fell more than 7 per cent last week.
Investors have anticipated that central banks around the globe will lower interest rates or take other actions to shield the global economy from harm caused by the coronavirus outbreak, CFRA chief investment strategist Sam Stovall told the Associated Press.
“Investors have convinced themselves that global central banks will likely be even more accommodative in order to short-circuit any psychological damage,” he said.
As a result, the Dow Jones regained 5 per cent on Tuesday (Australia time) and the ASX 200 closed up 0.7 of a percentage point at 6,436.
The US Federal Reserve and other major central banks, possibly including China’s, could also announce rate cuts before the end of the week, which would be at least a half point or as much as a 0.75 point cut, former Fed economist and Bank Policy Institute chief economist Bill Nelson said.
“The only way to get a positive market reaction is to deliver more than expected,” he said.
Although the RBA rate cut may not offer an immediate economic boost in Australia, it is a step the RBA needs to take to support the economy and restore some confidence, Finsure managing director John Kolenda said.
“Unemployment rose last month, and we are still dealing with the impact of the devastating bushfires over the summer. The RBA, fortunately, still has some fuel in the tank to support the economy,” he said.
Although there is international economic concern with the coronavirus, the primary domestic economic fundamentals are strong, despite the added challenges from bushfires and floods.
“Consumers should not be too alarmed by the negativity,” Mr Kolenda said.
“The whole world is having to deal with the coronavirus, with our retail businesses and travel industry being hit on a number of fronts. Some parts of the economy are doing it very tough, while others are ticking along.”
This week’s RBA decision could have a positive impact on real estate.
“Real estate markets across the country continue to benefit from low interest rates, with strong buyer demand resulting in auction clearance rates above 75 per cent, and a steady lift in dwelling values,” LJ Hooker head of research Mathew Tiller said.
On the global stage, the Organisation for Economic Cooperation and Development said this week the coronavirus outbreak “presents the global economy with its greatest danger since the financial crisis” in 2008.
Additionally, the OECD cut its world growth forecast as it expects the global economy will only grow by 2.4 per cent this year if there are only a limited number of coronavirus outbreaks outside of China.
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