CANBERRA, Australia -- Australia’s central bank on Thursday cut its benchmark interest rate to a record low 0.25% to ease the cost of credit and alleviate the shocks to the economy from the virus outbreak.
The move comes two weeks after a cut of the same quarter of a percentage point magnitude and marks the first time since July 1997 that the Reserve Bank has acted on interest rates outside its monthly cycle of board meetings. The bank has said it will not take the cash rate below 0.25%.
The cut follows coordinated moves by the U.S. Federal Reserve, European Central Bank and other central banks to support financial markets and companies.
With policy rates of Australia's central bank, the Fed, Bank of England and Reserve Bank of New Zealand “all effectively” at 0.25%, “Each of us is using all the scope that we have with interest rates to support our economies through a very challenging period,” Reserve Bank Gov. Philip Lowe told reporters.
Now that further rate cuts are off the table, the Australian bank's board has agreed to buy three-year government bonds from Friday to reduce their yields from 0.45% to 0.25%. In what observers describe as the bank's first-ever quantitative easing program, the bank hopes to make credit cheaper and increase the quantity of money circulating in the Australian economy.
Banks will also gain access to a 90 billion Australian dollar ($51 billion) three-year fund with incentives to lend to small and medium-sized businesses.
“We are expecting a major hit to economic activity and incomes in Australia that will last for a number of months,” Lowe said. “We're also expecting significant job losses. The scale of those losses will depend upon the ability of businesses to keep workers on during this challenging period.”
The Australian economy has already been rocked by international travel restrictions, bans on large public gatherings and escalating unemployment.
Australia’s largest airline, Qantas, is asking 20,000 of its 30,000 employees to take unpaid leave, and the island state of Tasmania will deter tourists by making interstate visitors self-isolate for 14 days.
Some economists expect the Australia economy will this year experience its first recession in 29 years.
The government last week announced a 17.6 billion Australian dollar ($11.4 billion) economic stimulus package.
Prime Minister Scott Morrison said on Thursday that more stimulus measures will be announced within days particularly targeting small and medium-sized businesses.
Australia’s jobless rate fell to 5.1% in February from 5.3% the previous month, according to Australian Bureau of Statistics data released on Thursday. But that was because of a fall in labor participation, economists said.