Statement by Philip Lowe, Governor: Monetary Policy Decision - March 2020 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2020-03-19

Media Release
Statement by Philip Lowe, Governor: Monetary Policy Decision
19 March 2020
The coronavirus is first and foremost a public health issue, but it is 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
Financial market volatility has been very high. Equity prices have experienced large declines.
Government bond yields have declined to historic lows. However, the functioning of major government bond
markets has been impaired, which has disrupted other markets given their important role as a financial
benchmark. Funding markets are open to only the highest quality borrowers.
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.
At some point, the virus will be contained and the Australian economy will recover. In the interim, 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.
At a meeting yesterday, the Reserve Bank Board agreed to the following comprehensive package to support
the Australian economy through this challenging period:
A reduction in the cash rate target to 0.25 per cent.
The 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 the 2–3 per cent target
A target for the yield on 3-year Australian Government bonds of around 0.25 per cent.
This will be achieved through purchases of Government bonds in the secondary market. Purchases of
Government bonds and semi-government securities across the yield curve will be conducted to help
achieve this target as well as to address market dislocations. These purchases will commence tomorrow.
The Bank will work closely with the Australian Office of Financial Management (AOFM) and state
government borrowing authorities to ensure the efficacy of its actions. Further details about the
implementation of this are provided in the accompanying notice.
A term funding facility for the banking system, with particular support for credit to small and
medium-sized businesses.
The Reserve Bank will provide a three-year funding facility to authorised deposit-taking institutions
(ADIs) at a fixed rate of 0.25 per cent. ADIs will be able to obtain initial funding of up to
3 per cent of their existing outstanding credit. They will have access to additional funding
if they increase lending to business, especially to small and medium-sized businesses. This facility is
for at least $90 billion. Further details are available in the accompanying notice.
The Australian Government has also developed a complementary program of support for the non-bank
financial sector, small lenders and the securitisation market, which will be implemented by the
Exchange settlement balances at the Reserve Bank will be remunerated at 10 basis points, rather
than zero as would have been the case under the previous arrangements.
This will mitigate the cost to the banking system associated with the large increase in banks'
settlement balances at the Reserve Bank that will occur following these policy actions.
The Reserve Bank will also continue to provide liquidity to Australian financial markets by
conducting one-month and three-month repo operations in its daily market operations until further
notice. In addition, the Bank will conduct longer-term repo operations of six-month maturity or longer
at least weekly, as long as market conditions warrant.
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, especially to small and medium-sized
businesses.
Australia's financial system is resilient and well placed to deal with the effects of the
coronavirus. The banking system is well capitalised and is in a strong liquidity position. Substantial
financial buffers are available to be drawn down if required to support the economy. The Reserve Bank is
working closely with the other financial regulators and the Australian Government to help ensure that
Australia's financial markets continue to operate effectively and that credit is available to
households and businesses.
Today's policy package from the Reserve Bank complements the welcome fiscal response from
governments in Australia. Together, these measures will support jobs, incomes and businesses through
this difficult period and they will also assist the Australian economy in the recovery.
There will be a press conference with further details at 4.00pm AEDT today.