RBA cuts rates to historic low, presses QE button

Save articles for later

Add articles to your saved list and come back to them any time.

The Reserve Bank has unveiled a wave of measures, including a cut in the official cash rate to a new record low, in a bid to drive down the nation's jobless rate and kickstart growth out of the coronavirus recession.

Following its traditional Melbourne Cup Day meeting, bank governor Philip Lowe said the cash rate would be cut to 0.1 per cent. It has been at 0.25 per cent since late March.

The RBA has cut interest rates.Credit:Louie Douvis

If passed on in full by commercial banks, a person with a $300,000 mortgage would save about $23 a month.

In addition, the bank said it would cut to 0.1 per cent the interest rate it is charging the nation's banks on a $200 billion line of credit that has been put in place to offer cheap money to small and medium-sized businesses.

The interest rate it pays banks that leave money overnight with the RBA has also been taken to zero.

Longer term, the RBA will expand its bond-buying program to purchase $100 billion over the next six months, revealing it would start targeting the interest rate on five and 10-year government bonds.

It will split the purchases, with 80 per cent to be of federal government bonds and 20 per cent from state government bonds. The bonds will be bought on the secondary market and not directly from governments.

This is in addition to the more than $60 billion the bank has spent since March on buying three-year government bonds.

CreditorWatch chief economist Harley Dale said the RBA had now in effect run out of ways to support the economy, adding that fiscal policy would have to do the "heavy lifting" for the rest of the year.

"While it can be argued that this latest interest rate cut will do little to stimulate demand, it will likely feed through to lower fixed rate mortgages. That can provide a powerful charge to the economic recovery," he said.

More to come

Sign up to our Coronavirus Update newsletter

Get our Coronavirus Update newsletter for the day’s crucial developments at a glance, the numbers you need to know and what our readers are saying. Sign up to The Sydney Morning Herald’s newsletter here and The Age’s here.

Most Viewed in Politics

Source: Read Full Article