The Reserve Bank of Australia anticipated virus-related workplace disruptions and social isolation measures well before it pumped more cash into the economy and flagged further policy easing this week.
It also considered a fortnight ago a scenario where the COVID-19 outbreak would be contained in the “very near future” and where there would be a rapid recovery in economic activity – but scrapped that outcome as very unlikely.
Minutes from the RBA’s monthly meeting on March 3 showed board members noted the increasing chance that COVID-19 would cause major economic disruption around the world, including probable social distancing and workplace disruption as people shun regular spending patterns in fighting the spread of the outbreak.
The bank cut the cash rate to a record low 0.5 per cent this month in a bid to buttress the economy against the mounting toll of the virus and indicated it was willing to act further.
Already this week the RBA has pumped billions into the financial system and indicated further stimulus could be revealed on Thursday as financial markets plunge.
A cut to 0.25 per cent is tipped and governor Philip Lowe may also outline how the RBA will approach quantitative easing, in which it would purchase government bonds to keep a lid on long-term yields.
Last month the RBA noted it was too early to determine the extent to which Chinese and global economic growth would be affected by the coronavirus outbreak, and even tipped modest improvement ahead.
The March board meeting minutes – released on Tuesday – show just a month later the RBA was already expecting the probability that people would seek to avoid gatherings, including public transport and perhaps workplaces.
Board members noted the education, transport and tourism sectors were already being battered and household spending and business investment would likely sag in coming months.
The board observed GDP growth in the March quarter was likely to be noticeably weaker than previously expected, and it was difficult to predict how long it would take for the economy to return to more usual levels of activity.
The predicted 0.5 per cent hit to GDP in March quarter does not even include possible effects on domestic activity of supply chain disruptions and public health safety interventions to reduce the likelihood of transmitting COVID-19.
Members also noted the virus would likely delay the already glacial progress Australia was making towards its employment and inflation targets.
As part of their deliberations this month, board members considered a number of scenarios, including one where the COVID-19 outbreak would be contained in the very near future and where there would be a rapid recovery in economic activity.
In that scenario, the maximum effect of any additional monetary policy stimulus would be felt in the recovery phase, rather than in the short term, when policy support would most be needed.
However, this was considered very unlikely, with the more realistic scenario being that the outbreak would have a significant effect on the Australian economy.