Australia pumps $56 billion to revive virus hit economy

Australia is pumping about A$100 billion ($56 billion) into the economy as it seeks to minimise the blow from the coronavirus epidemic. The Reserve Bank of Australia (RBA) slashed interest rates in an out-of-cycle cut to an all time low and embarked on a quantitative easing programme for the first time, while the government unveiled A$15 billion in loan support for small and medium lenders.

“To help us get to the other side we need a bridge,” RBA Governor Philip Lowe said in a speech in Sydney. “Without that bridge there will be damage, some of which will be permanent to the economy and to people’s lives.”

The RBA, which has been pumping money into the system throughout the week to ensure business and households have access to credit, cut rates to a record low of 0.25%. The central bank also announced a A$90 billion lending package for banks.

The government’s package for small and medium businesses adds to a A$17.6 billion stimulus package announced earlier this month. Treasurer Josh Frydenberg said a planned second package “will be substantially different” to the first, comments interpreted by economists to mean a significantly larger sum.

The announcement helped push three-year yields to 0.34% from 0.589% before the central bank’s decision, though they were still higher than the newly set target.

The move follows an unprecedented and large step up in global co-ordination by central banks, governments and regulators since the start of this week to cushion the economic impact of the coronavirus.

The US Federal Reserve on Sunday slashed key rates by 100 basis points, boosted asset purchases and has flushed the system with liquidity. A number of other major central banks have since followed suit.

“A priority for the Reserve Bank is to support jobs, incomes and businesses, so that when the health crisis recedes, the country is well placed to recover strongly,” the RBA said in a statement.

Australia’s A$2 trillion ($1.11 trillion) economy has had a near 30-year dream run without recession, thanks in part to rapid growth in demand from China for commodities and a housing market boom.

It was also able to emerge from the 2008-09 global financial crisis relatively unscathed, allowing its central bank to spurn the new and unorthodox monetary policies adopted by many of its developed world peers during that period.

But the coronavirus now hangs heavy over the outlook with economists at major banks predicting the country would slide into recession in the first half of this year.

The RBA said it would also provide a three-year funding facility for at least A$90 billion to the country’s banks at a fixed rate of 0.25%. Lenders will be able to obtain initial funding of up to 3% of their existing outstanding credit.

The facility will be enhanced if banks boosted lending to businesses, especially to small- and medium-sized enterprises, the RBA added.

“The various elements of this package reinforce one another and will help to lower funding costs across the economy and support the provision of credit,” the RBA said.

In a separate statement, the government said it would buy A$15 billion of residential mortgage-backed securities and other asset backed securities over the next 12 months.

Together with the RBA’s lending package, that would pump about A$105 billion into the economy.

Widening restrictions on global travel and domestic movement led Qantas Airways on Thursday to put 20,000 employees on leave until at least the end of May as it suspended all international flights and slashed domestic services by almost two-thirds.

Qantas said it is in talks with grocer Woolworths Group about redeploying some of its workers as supermarkets struggle to contend with an influx of shoppers rushing to purchase goods ahead of any broader domestic shutdown, which has so far been resisted by Morrison.

Supermarket shelves are stripped daily of essentials, including milk, pasta, meat and toilet paper, perpetuating panic buying that Morrison has labelled “ridiculous and un-Australian.”

Economists, however, said any Qantas to Woolworths migration will do little to offset an expected rapid rise in unemployment.

Westpac chief economist Bill Evans has forecast the jobless rate to reach 7% by October, up from 5.3% last month.

The small island state of Tasmania on Thursday imposed its own state of emergency, becoming the first region within Australia’s borders to do so, ordering people who arrive from mainland Australia to self-isolate for 14 days.

Reuters