News Coronavirus CommBank first to move after RBA’s emergency interest rate cut
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CommBank first to move after RBA’s emergency interest rate cut

reserve bank emergency coronavirus
The RBA has cut rates to a record low, while the government is propping up small lenders. Photo: AAP
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The Commonwealth Bank has moved quickly following the Reserve Bank’s emergency interest rate cut on Thursday, cutting rates on some of its home loans by 0.7 per cent.

The country’s biggest mortgage lender followed – and bettered – the RBA’s cut within an hour of its announcement.

“These are unprecedented times, and they call for unprecedented measures,” Commonwealth Bank chief executive Matt Comyn said.

The Reserve Bank slashed interest rates to a new record low of 0.25 per cent and said it would start quantitative easing (QE) for the first time in history.

The historic rate cut marked the first time the central bank has cut rates outside its ordinary monthly meeting since 1997.

At the same time as the RBA made its 2.30pm announcement, Treasurer Josh Frydenberg said the federal government would pour $15 billion into smaller lenders.

“The government’s actions will enable customers of smaller lenders to continue to access affordable credit as the world deals with the significant challenges presented by the spread of coronavirus,” he said.

“Small lenders are critical to Australia’s lending markets, often driving innovation and providing competition for larger lenders.”

The spread of the coronavirus in Australia and across the world has cemented the likelihood the national economy will fall into recession this year, as consumer spending and productivity slumps.

Dr Lowe said the RBA had chosen to cut rates and purchase government bonds to support jobs and incomes “so that when the health crisis recedes, the country is well placed to recover strongly”.

He said while the coronavirus was, first and foremost, a public health issue, it was having a “very major impact” on the economy and 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,” Dr Lowe said.

“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 central bank will buy as many government bonds as necessary to bring down the yield on three-year government bonds to 0.25 per cent – driving down borrowing costs for business and government.

And Dr Lowe said the central bank wouldn’t increase interest rates until progress had been made towards an unemployment rate of 4.5 per cent and inflation had risen to its target band of 2 to 3 per cent a year.

In addition to maintaining low interest rates and starting QE on Friday, the central bank said it would increase its repo operations and set up a funding facility for banks to supply $90 billion worth of cheap credit to affected small and medium-sized businesses.

The RBA’s move came after central banks around the world unveiled huge stimulus packages to stabilise financial markets and limit the economic impacts of the coronavirus.

The European Central Bank has said it will buy $1.46 trillion worth of government and company debt across the eurozone, and the US Federal Reserve announced a similar package worth $1.25 trillion on Sunday.

By starting QE, the RBA hopes to stabilise the financial system and encourage banks to keep lending to businesses and home buyers as the country enters a major economic downturn.

Ratings agency S&P Global has said the world is already in recession, and ANZ is tipping Australia’s unemployment rate to reach 7.8 per cent by the end of the year.