RBA urged to cut interest rates in snap meeting to stem fallout of ASX bloodbath
Michele Bullock has the power to call a snap RBA meeting to cut interest rates as the economy is rocked by global turmoil. · Yahoo Finance Australia
The ASX 200 plummeted 461.40 points or 6.02 per cent to 7,206.40 on Monday’s opening bell and the Australian dollar was buying just 59.92 US cents. The last time the dollar traded below 60 cents was for one day in April 2020.
By the time you read this, the markets are likely to have moved dramatically from where they are now. Such is the nature of the money market reaction to the destructive policies of the Trump administration to impose across the board tariffs.
One thing that is known is that the effect of the tariffs will be to depress international trade and with that economic growth. Countries like Australia, where between one-fifth and one quarter of the economy is based on international trade, the fallout could be ugly.
The extent of the downside can and should be cushioned by proactive policy action from the Reserve Bank of Australia (RBA).
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Because of the obviously negative effect on Australia, the Monetary Policy Board (MPB) of the RBA should use Section 25AN of the RBA Act to hold a meeting this week to deliver an interest rate cut.
“The Monetary Policy Board must hold such meetings as the Board determines are necessary for the efficient performance of its functions,” the Act states.
“The Chair of the Monetary Policy Board may convene a meeting at any time.”
Easier monetary policy, as was applied in the Global Financial Crisis in 2007 to 2009 and again during the COVID pandemic in 2020 to 2022, put a floor under economic activity, and in the process saving thousands of jobs and businesses in the process.
It worked well.
Low inflation, a weaker labour market and what were obvious risks to the global economy a week ago, when the RBA met and refused to cut interest rates, are now extreme.
It is a long six weeks until the next scheduled meeting of the RBA MPB, 20 May in fact, during which time the downside risks to the economy will intensify if the RBA does nothing until then.
A decision to delay easier policy will costs tens of thousands and jobs, something that is against the RBA mandate to maintain full employment.
It would not be an emergency meeting or smack of panic, both which are emotive terms.
Rather it would be the prudent functioning of the RBA as it deals with a very serious and hugely significant shock to the Australian economy.
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The issue that should be canvassed at this ‘special’ meeting is whether to cut 25 or 50 basis points, such is the nature of the risks to the economy and the starting point of the official cash rate at a restrictive 4.10 per cent.
At the time of writing, and this will change with updates on the global market ongoing reaction to the tariffs, markets are expecting over 100 basis points of interest rate cuts by the end of 2025.
An interest rate cut would not be a surprise.
The RBA should step up and meet these expectations.
In the process, Governor Michele Bullock can give a press conference on indeed, a series of press conferences in the weeks ahead to update the public of its strategy to deal with this negative shock to the economy.
As part of these market ructions, the Aussie dollar has slumped to US60 cents having been around US 59.4 cents at one stage.
The RBA MPB is unlikely to be swayed by this move, because the currency is floating and as such, it adjusts up and in this case down in response to the unfolding news.
Commodity prices are also crashing in the market mayhem, with oil below US$60 a barrel, copper prices down 8 per cent, gas and other commodities down sharply.
The Australian dollar fall is justified and the RBA should not and indeed, will not stand in the way.
The bottom line is that what is happening is serious, it is negative and monetary policy as it stands is inappropriate for the current conditions and more importantly the economic outlook.
