RBA Cuts Rate Further, Launches Asset Purchases To Ease Covid-19 Impact

Reserve Bank of Australia decided to cut its key interest rates further to a record low and launched a money printing scheme as the spread of coronavirus, or Covid-19, disrupts economic activity and financial markets.

At an emergency meeting on Thursday, the Reserve Bank Board governed by Philip Lowe, decided to reduce the cash rate by 25 basis points to 0.25 percent from 0.50 percent. This was the second reduction this same month.

On March 2, the rate was lowered by 25 basis points.

In the forward guidance, Lowe said the rate will not be increased until progress is being made towards full employment and the bank is confident that inflation will be sustainably within the 2-3 per cent target band.

The RBA Governor said the cash rate will remain at its current level for some years, but not forever.

The bank will purchase government bonds in the secondary market targeting the yield on 3-year bonds at around 0.25 percent. The operation to be commenced on Friday is set to address market dislocations.

In order to support credit supply to small and medium-sized businesses, the RBA will provide a three-year funding facility to authorized deposit-taking institutions at a fixed rate of 0.25 percent. The planned size of this facility is at least A$90 billion.

Further, exchange settlement balances at the central bank will be remunerated at 10 basis points, rather than zero.

The bank will also continue its one-month and three-month repo operations in its daily market operations until further notice. In addition, the RBA will conduct longer-term repo operations of six-month maturity or longer at least weekly, as long as market conditions warrant.

In addition to the monetary policy easing, the government on Thursday announced A$15 billion funds to support small and medium-sized businesses.

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