By business reporter Nassim Khadem
The Reserve Bank has cut interest rates to a record low 0.25 per cent and announced a money-printing program for the first time in its history to help prevent a coronavirus-driven recession.
- Australia’s economy continues to deteriorate as panicked investors wipe billions of dollars of value off local stock market
- The RBA will buy Australian government bonds as part of its first-ever quantitative easing program
- The Government also announces investment of up to $15 billion to enable smaller lenders to support consumers and small businesses
The RBA will buy Australian government bonds as part of its first-ever quantitative easing program, and provide a three-year funding facility to provide cheap loans for Australian banks.
Australia’s economy continues to rapidly deteriorate, and panicked investors have wiped billions of dollars of value off the local stock market.
In turning to quantitative easing, the central bank is using a lever that it has not used even during some of the worst catastrophes in recent history, including the global financial crisis and the 9/11 terrorist attacks.
Just before the announcement, the Australian dollar plunged to its lowest level since October 2002, trading at 55.08 US cents.
The currency has lost 20 per cent so far this year.
Reserve Bank governor Philip Lowe, who will give a speech later this afternoon with more details, said the bank would hold the cash rate at 0.25 per cent “until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3 per cent target band”.
The Reserve Bank board typically only meets on the first Tuesday of every month, but with global stock markets in panic because of the COVID-19 pandemic, it held an emergency meeting yesterday.
The RBA said it would also provide at least $90 billion at 0.25 per cent over three years to banks if they lend that cash to small and medium-sized businesses. This is similar to an initiative announced by the Bank of England last week.
It came as the Morrison Government announced an investment of up to $15 billion to enable smaller lenders to continue supporting Australian consumers and small businesses.
Treasurer Josh Frydenberg said it would “enable customers of smaller lenders to continue to access affordable credit” and would complement the RBA’s $90 billion term funding facility.
Mr Frydenberg said the Government’s debt agency, the Australian Office of Financial Management, would provide the $15 billion through wholesale funding markets used by small banks and non-bank lenders.
Enabling legislation would be introduced into Parliament next week.
The RBA is moving in the footsteps of other world central banks, including the US Federal Reserve, in buying up government bonds and encouraging consumer spending by printing more money and pumping it into the economy.
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Lowe wants Australia ‘well placed’ when pandemic is over
Dr Lowe said the coronavirus pandemic had restricted movements of people across borders and within cities and was “having a very major impact on the economy and the financial system”.
“This is likely to remain the case for some time yet as efforts continue to contain the virus,” he said.
“The primary response to the virus is to manage the health of the population, but other arms of policy, including monetary and fiscal policy, play an important role in reducing the economic and financial disruption resulting from the virus.”
He said at some point, the virus would be contained, and the Australian economy would recover, but in the interim, the Reserve Bank’s priority was to support jobs, incomes and businesses.
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This was so that “when the health crisis recedes, the country is well placed to recover strongly”.
Commonwealth Bank chief executive Matt Comyn said the bank had expanded support for small businesses and households in response to the RBA announcements.
“We recognise that this is a very concerning time for our customers and the community,” he said.
“These are unprecedented times, and they call for unprecedented measures.”
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Topics: infectious-diseases-other, regulation, money-and-monetary-policy, small-business, markets, business-economics-and-finance, respiratory-diseases, government-and-politics, federal-government, globalisation—economy, economic-trends, australia