Australia central bank weighs risks to extend rate cuts

The central bank of Australia is considering to lessen monetary policy and cut interest rates if unemployment rate increased and inflation stalled.

Unemployment rate decreased to 5.1% in December while inflation rose in the final quarter of 2019, showing that lowering rates was not urgent.

The Reserve Bank of Australia cut its cash rate thrice last year to 0.75%.

“It is possible to have a period of stability” on interest rates, said RBA Governor Philip Lowe.

Lowe’s statement induced investors to disregard interest rate cuts this year. Meanwhile, three-year bond yields AU3YT=RR soared nine basis points and to 0.71%.

Financial futures are pricing on a 25-basis-point cut in August from early June.

The recent bushfires in Australia will also impact gross domestic product growth by 0.2% in the December-March quarter. However, a possible rebound will lift the economy later on the year.

Lowe also noted that the virus outbreak is a point of worry for the outlook, but that it was too early to estimate its effect.

Currently, RBA keeps it GDP estimate stable, with a 2.75% expansion for 2020 and 3% for 2021.

RBA is set to announce its quarterly economic estimate on Friday in parliament.