The RBA Bazooka
All measures are broadly aimed at providing banks with cheaper funding and maintaining liquidity and market function.
The final historic move of the day, somewhat late to the party but putting up a good fight, the RBA have continued the spate of coordinated central bank action. The RBA have delivered on the last rate cut, taking the cash rate to a new record low 0.25%. The effective lower bound. That is effectively 50bps of rate cuts delivered in March. Accompanying this move with forward guidance explicitly stating rates would not be moving higher until the central bank sees progress on jobs and inflation back within the target band. Governor Lowe later saying that he expects the cash rate to remain at this level for “some years”.
The “whatever it takes” moment came later in the press conference as Governor Lowe stated, “Nothing is off the table with policy” and reaffirmed what many other central banks have said, that there are “no limits” when it comes to bond purchases.
The RBA also announced the commencement of Australian government bond purchases across the curve starting tomorrow, with the intent of yield curve control, aiming to maintain the 3-year bond yield at 0.25% and support liquidity in fixed income markets. These purchases will likely be extended out the curve with time. The move will reduce borrowing costs for lending priced off the 3-year yield.
The central bank has also enacted a term funding facility of at least $90 billion for the banking system at a fixed rate of 0.25%, this to encourage lending to otherwise solvent SMEs affected by the COVID-19 outbreak. A crucial measure in supporting the reduction of layoffs, and failure of otherwise healthy companies that will see their balance sheets temporarily hit. As we outlined above just because parts of the economy are shut down and demand has collapsed businesses still have to pay the rent and keep paying staff.