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Whatever it takes – RBA looks to expansionary monetary policy

Quantitative easing, or QE, looks likely to be implemented in Australia for the first time in response to the impact of the coronavirus pandemic.

In the wake of the COVID-19 pandemic, the Reserve Bank of Australia has announced it is re-starting quantitative easing measures to support Australia’s financial system.

A statement today from Governer Philip Lowe says the RBA is working closely with the Australian Government to ensure that Australia’s financial markets continue to operate effectively and that credit is available to households and businesses.

“The Reserve Bank stands ready to purchase Australian government bonds in the secondary market to support the smooth functioning of that market, which is a key pricing benchmark of the Australian Financial System.

It would be the first time in Australia’s history such measures have taken place.

The central bank statement also said it would also engage in “repo operations” where it will on-sell those bonds to investors before buying them back for a slightly inflated price.

Will the RBA cut rates again?

The release says the RBA will announce further policy measures to support the Australian economy on Thursday.

The Statement also says that Australia’s financial system is ‘resilient’ and ‘well placed’ to deal with the effects of the coronavirus.

But, there is already speculation that this will involve another 25bp rate cut taking the official cash rate from 0.5 per cent to 0.25 per cent.

The USA

The US has cut interest rates to almost zero and launched a $700bn stimulus program in a bid to protect the economy from their effects of coronavirus.

This is after the central bank had already cut interest rates by half a percentage point after an emergency meeting on the 3 March.

New Zealand

Reserve Bank of New Zealand governor Adrian Orr says coronavirus developments over the past few days prompted the Reserve Bank to cut the official cash rate to 0.25 per cent in an unscheduled announcement.

The central bank has said that is where the rate will stay for the next 12 months as it saw “very weak economic activity” ahead.

Rest of the World

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.

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