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Official interest rate dropped to a new low of 0.25%, Australia's first unexpected cut in 23 years

Source: xkb.com.au
[Economic News]     19 Mar 2020
At a time when the Australian dollar fell to a new low of 18 years, the Reserve Bank of Australia (Reserve Bank) official cash rates sharply to a record low of 0.25 per cent. This is the first time since 1997 that the Australian Reserve Bank has announced a reduction in interest rates during its regular session.

The bank cut interest rates to a record low of 0.25% today. (ABC Photo)


At a time when the Australian dollar fell to a new low of 18 years, the Reserve Bank of Australia (Reserve Bank) official cash rates sharply to a record low of 0.25 per cent. This is the first time since 1997 that the Australian Reserve Bank has announced a reduction in interest rates during its regular session.

The bank was scheduled to meet on its first Tuesday in April, but earlier this week it announced an emergency meeting to deal with the growing new crown outbreak crisis.

The bank had previously hinted that it would not cut interest rates below the 0.25% threshold, saying even so, the move would not work. Today, however, official interest rates have plunged 25 basis points to a new low of 0.25%.

Governor Lowe (Philip Lowe) also announced today a number of rescue measures, including quantitative easing, aimed at ensuring that individuals and businesses still have access to credit.

Australian Reserve Bank President Loewe announced the launch of quantitative easing. (CNN Photo)


He said in a statement this afternoon :" The new crown virus is primarily a public health issue, but it also has a considerable impact on the economic and financial system. At a time when the virus is spreading, many countries limit the movement of people across borders and implement social distance measures, including between countries and cities. As a result, global economic activities have been severely disrupted. As the suppression of the virus continues, this may continue for some time. "

"Financial markets have been at high volatility and share prices have fallen sharply. government bond yields have fallen to historic lows. And, given government important role of major public debt markets as financial benchmarks, their functioning has been undermined and other markets have been disrupted. The fund market is now open only to the best borrowers. "

"Although the primary response to the virus is to control population health, other policy instruments, including monetary and fiscal policies, play an important role in reducing the economic and financial shocks caused by the virus. "

He said the outbreak would be contained at some point, when Australia`s economic would recover. At the same time, however, it is the job of the Australian Reserve Bank to "provide support for employment, income and business to prepare the country for a strong recovery as the health crisis recedes. "

He said the Board would not raise cash rates unless it made progress "towards full employment" and was convinced that inflation would remain "within the target range of 2 to 3 per cent on a continuous basis ".

Apart from cutting interest rates to 0.25 per cent, the bank set its three-year Australian government bond yield target at 0.25 per cent and introduced regular financing mechanisms for the banking system to support lending to SMEs in particular.

The bank is preparing to buy australian government bonds and launch quantitative easing to effectively stimulate consumer spending by printing and injecting money economic, he said.

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