Australia dives into quantitative easing, cuts cash rate to new low
SYDNEY: Australia made a historic foray into quantitative easing yesterday and cut interest rates for the second time in a month, joining a rush by global central banks to pump cash into the economy as the coronavirus pandemic crushed businesses.
Following an out-of-schedule meeting, the Reserve Bank of Australia (RBA) reduced its cash rate to an all-time low of 0.25% and said the board would not tighten policy until it achieves its employment and inflation goals.
It also set a target for the yield on three-year Australian government bonds of around 0.25%, which it plans to achieve by purchases in the secondary market beginning Friday.
The announcement helped push three-year yields to 0.34% from 0.589% before the RBA’s decision, though they were still higher than the newly set target.
The move follows an unprecedented and large step up in global coordination by central banks, governments and regulators since the start of this week to cushion the economic impact of the coronavirus.
The US Federal Reserve on Sunday slashed key rates by 100 basis points, boosted asset purchases and has flushed the system with liquidity. A number of other major central banks have since followed suit.
“A priority for the Reserve Bank is to support jobs, incomes and businesses, so that when the health crisis recedes, the country is well placed to recover strongly,” the RBA said in a statement.
Australia’s A$2 trillion (RM5.2 trillion) economy has had a near 30-year dream run without recession, thanks in part to rapid growth in demand from China for commodities and a housing market boom.
It was also able to emerge from the 2008-2009 global financial crisis relatively unscathed, allowing its central bank to spurn the new and unorthodox monetary policies adopted by many of its developed world peers during that period.
But the coronavirus now hangs heavy over the outlook with economists at major banks predicting the country would slide into recession in the first half of this year.
Australia has recorded around 600 coronavirus infections and six deaths, a relatively small number compared with other countries, but officials are growing increasingly concerned about the prospect of an exponential rise in cases. – Reuters