RBA cuts rates to historic low of 0.25 per cent

THE Reserve Bank of Australia has cut the cash rate to a historic low of 0.25 per cent as part of a package of measures in response to the COVID-19 pandemic.

In a statement issued this afternoon, RBA governor Philip Lowe said the bank’s priority was “to support jobs, incomes and businesses, so that when the health crisis recedes, the country is well placed to recover strongly.”

The RBA’s board will not increase the cash rate target “until progress is being made towards full employment and it is confident that inflation will be sustainably within a target band of two to three per cent”.

It is not yet known whether the four big banks – Westpac, ANZ, NAB and Commonwealth Bank – will pass on the full cut in the interest rates they offer to their customers, but federal Agriculture Minister David Littleproud said banks should “do the right thing by Australian farmers”.

“The Reserve Bank has made this extraordinary move to keep the economy going. This is an economy already in recovery from the drought and bushfires.

“Now we are facing the challenge of coronavirus. Rural and regional communities especially are feeling the impacts.

“The Government has their backs. But we are all in this together and the banks can play a leading role by cutting their rates by the full 0.25 per cent and providing relief now.”

Mr Lowe said the coronavirus was first and foremost a public health issue but was also having a very major impact on the economy and the financial system.

“As the virus has spread, countries have restricted the movement of people across borders and have implemented social distancing measures, including restricting movements within countries and within cities. The result has been major disruptions to economic activity across the world. This is likely to remain the case for some time yet as efforts continue to contain the virus.

“The primary response to the virus is to manage the health of the population, but other arms of policy, including monetary and fiscal policy, play an important role in reducing the economic and financial disruption resulting from the virus.”

As well as the cut, the RBA will provide a three-year funding facility of at least $90 billion to authorised deposit-taking institutions (ADIs) such as banks at a fixed rate of 0.25 per cent.

ADIs will be able to get initial funding of up to 3 per cent of their existing outstanding credit, and will have access to more funding if they increase lending to business, especially to small and medium-sized businesses.