RBA expected to make unscheduled rate cut

The Reserve Bank will make a monetary policy announcement on Thursday in which economists expect it to cut interest rates and launch its first ever quantitative easing program.

The RBA had already said that Governor Philip Lowe would give a speech and hold a conference call at 1600 AEDT, but the timing and the fact it was a monetary policy announcement was only stated on Wednesday afternoon.

Markets widely expect the RBA to cut the cash rate to a new record low 0.25 per cent and announce a move to quantitative easing, including buying government bonds.

The RBA's announcement 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 since flushed the system with liquidity.

Supporting those steps, the US government unveiled a $US1 trillion stimulus package on Tuesday.

Britain too announced a $US400 billion rescue package for businesses while Australian Prime Minister Scott Morrison flagged fiscal measures will be announced soon.

On Thursday, economists expect the RBA to provide more clarity and details on its bond buying programme, including target and tenor.

More tailored measures are also expected such as a UK-style Term Funding Scheme whereby the RBA would provide cheap loans to banks on the condition they lend to businesses at a favourable rate.

The purchase of semis, or state government bonds, and residential-mortgage backed securities are also possibilities.

In recent days, the RBA has pumped more money into the system while also substantially lengthening the average tenor of lending.

The RBA said earlier this week it would conduct repo operations of six-months maturity or longer at least weekly, "as long as market conditions warrant."

While the measures are welcome and desperately needed, economists said they still won't be enough to prevent the country's first recession in nearly three decades.

"Unfortunately we expect the economic impact of COVID-19 to tip the economy into recession," economists at ANZ said, predicting GDP to shrink 2.0 per cent in the second quarter alone.

"Policy stimulus will help, but it won't be able to offset the demand loss that will come from social distancing and widespread closures."

Austrlaian Associated PressBack to Breaking News

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