The Reserve Bank has cut the interest rate to a record-low 0.25 per cent as part of a suite of economic support to cushion the blow of the coronavirus pandemic.
Thursday’s widely anticipated emergency rate cut means the central bank has also pulled the trigger on its first-ever quantitative easing program in a bid to boost cash supply and encourage lending and investment.
The RBA had already reduced the cash rate to 0.5 per cent at its regular meeting this month in a bid to buttress the economy amid rising fears of a coronavirus-induced recession.
Governor Philip Lowe said on Thursday the RBA would buy Australian government bonds in the secondary market with a target yield on three-year bonds of about 0.25 per cent.
It will also provide a $90 billion term funding facility for the banking system, with particular support for credit to small and medium-sized businesses.
This will be achieved through purchases of government bonds in the secondary market.
Exchange settlement balances at the Reserve Bank will be remunerated at 10 basis points rather than zero as would have been the case under previous arrangements.
This will mitigate the cost to the banking system associated with the large increase in banks’ settlement balances at the Reserve Bank that will occur following these policy actions.
The RBA will also continue to provide liquidity to Australian financial markets by conducting one-month and three-month repo operations in its daily market operations until further notice.
Dr Lowe maintains Australia’s financial system is resilient and well placed to deal with the effects of the coronavirus.
“Substantial financial buffers are available to be drawn down if required to support the economy,” he said in a statement.
“The Reserve Bank is working closely with the other financial regulators and the Australian government to help ensure that Australia’s financial markets continue to operate effectively and that credit is available to households and businesses.”
Dr Lowe is due to address media at 1600 AEDT.
The Aussie dollar bounced on the announcement, jumping from a near 18-year low of 55.41 US cents to 55.82 by 1440 AEDT.
AAP
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