Really nothing is off the table, says Australia’s central bank
• Reserve Bank of Australia reduces its cash rate to a record low of 0.25%, lifting the Australian dollar
Australia made a historic foray into quantitative easing on Thursday and said it would do “whatever is necessary” to ensure funding costs are low and credit is freely available, as the coronavirus pandemic jolts businesses.
Following an out-of-schedule meeting, the Reserve Bank of Australia (RBA) reduced its cash rate to a record low of 0.25% and said the board would not tighten policy until it achieved its employment and inflation goals.
It also set a target for the yield on three-year Australian government bonds at about 0.25%, which it plans to achieve by purchases in the secondary market beginning on Friday.
“Really nothing is off the table,” RBA governor Philip Lowe said in Sydney after giving a speech on the newly announced measures.
“We are in extraordinary times and we’re prepared to do whatever is necessary to make sure funding costs in Australia are low and the supply of credit is there for Australian businesses and households.”
The announcement helped push three-year yields to 0.35% from 0.589% before the RBA’s decision, though they were still higher than the new target.
The moves also helped lift the Australian dollar after it briefly collapsed to $0.5510, the lowest since late 2002. It was last down 0.16% at $0.5758.
The RBA’s stimulus follows an unprecedented step up in global co-ordination by central banks, governments and regulators since the start of this week to cushion the effects of the coronavirus.
The US Federal Reserve on Sunday slashed key rates 100 basis points, boosted asset purchases and flushed the system with liquidity. A number of other major central banks have followed suit.
Australia’s A$2-trillion economy has had a near 30-year dream run without recession, thanks in part to rapid growth in Chinese demand 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 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 2020.
GROWING ANXIOUS
Australia has recorded about 600 coronavirus infections and six deaths and officials are growing anxious about the prospect of an exponential rise in cases.
In a sign of the problems, Australian flag carrier Qantas Airways told most of its 30,000 employees to take leave on Thursday and ceased international services.
Lowe said the cash rate was likely to stay at 0.25% for three years, adding that Australia needed to steel itself for a rise in unemployment in coming months. “We are not going to see much job hiring and the reality is we will see quite a few job losses,” he said.
The RBA’s stimulus includes a three-year funding facility for at least A$90bn to the country’s banks at a fixed rate of 0.25%. Lenders will be able to obtain initial funding of up to 3% of their existing outstanding credit.
The facility would be enhanced if banks boosted lending to businesses, especially to small- and medium-sized enterprises, the RBA said.
Australia’s prudential regulator also loosened its capital requirements to enable banks to lend more freely.
FISCAL STIMULUS
In a separate statement, the government said it would buy A$15bn of residential mortgagebacked securities and other asset backed securities over the next 12 months.
This is on top of the A$17bn of fiscal stimulus already announced. Together with the RBA’s lending package, that would pump more than A$100bn into the economy.
Lowe also called for more government stimulus, which was echoed by economists.
“The best response to Covid-19 remains a fiscal one, supported by liquidity measures,” said Callam Pickering, APAC economist at global job site Indeed.
He said that scope to expand the support offered to banks and even buy longer-term government bonds.
Earlier, the RBA used its daily market operation to pump a record A$12.7bn into the banking system, aiming to ease liquidity constraints in a stressed bond market.
Prepare for lots of fake applause, canned laughter and repeats. As coronavirus halts major live events and TV productions across Europe, broadcasters are struggling to keep their schedules full and entertaining for people now stuck at home.
It’s requiring some ingenuity and sleights of hand: in Germany, broadcaster ProSiebenSat. 1 Media is airing live hit show “The Masked Singer” without a studio audience, sprucing up the singing competition with audio of applause recorded during last week’s episode.
In the UK, long-running BBC soap opera “Eastenders” has been postponed and is effectively being rationed, cut from four episodes to two per week, so that existing programmes already filmed can last for “as long as possible,” the BBC said in a statement.
In ITV’s rival soap opera, “Coronation Street,” kissing scenes have been banned.
The virus is challenging traditional broadcasters more than streaming giants such as Netflix and Amazon.com, which are less reliant on live programming and advertising revenue, both of which have been badly hit.
For example, the suspension of top-flight club soccer and postponement of Uefa’s Euro 2020 competition have left large gaps in the schedules of Comcast Corp’s Sky, ITV and France’s RMC Sport, owned by Altice Europe.
“It’s a perfect storm,” said John Turner, global head of media practice at management consultants Oliver Wyman.
He said long-term production of shows would be shelved and broadcasters would not be able to charge such high advertising rates when showing old library content.
FREEZE PAYMENTS
Pan-regional broadcasters, such as Discovery’s Eurosport and Time Warner’s CNN, will also suffer as they tend to benefit from global tourism marketing and luxury brand ads, which have declined steeply due to the virus.
“It’s going to be ugly,” Turner said.
Sky is allowing viewers to freeze payments for sport subscriptions after the English soccer Premier League was put on hold. It will replace live games with feature programmes and archive footage. In France, RMC Sport will broadcast documentaries and famous old matches such as European Cup games to fill its scheduling gap, Herve Beroud, Altice Media’s deputy director-general in charge of news and sports, said in a radio interview on Wednesday.
“There’s no black screen, obviously,” Beroud said.
“We have a large catalogue.”