This is the RBA’s second rate cut in a month as it attempts to support the economy as COVID-19 continues to wreak havoc on local and international economies.
In announcing the RBA's decision, the Governor Philip Lowe said that while the coronavirus is first and foremost a public health issue, it is also having a "very major impact" on the economy and the financial system.
He explained that the restricted movement of people around the world and locally has resulted in major disruptions to economic activity across the world, which is likely to remain the case for some time yet as efforts continue to contain 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," said Mr Lowe.
The Governor also confirmed the RBA will begin conducing regular auctions in the bond market to achieve a target of 0.25 per cent for the yield on 3-year government bonds.
"Our first auction will be tomorrow. As part of this program, our intention is to purchase bonds of different maturities given the high level of substitutability between bonds.
"We are also prepared to buy semi-government securities to achieve the target and to help facilitate the smooth functioning of Australia's bond market," Mr Lowe said.
The RBA said it will work closely with the Australian Office of Financial Management (AOFM) and state government borrowing authorities to ensure the efficacy of its actions.
RBA cut expected
Industry commentators and finance pundits had bet on the RBA taking drastic measures to right the dropping Aussie economy.
With an out-of-cycle cut on the cards, Finder conducted an unscheduled Finder RBA Cash Rate survey on Monday, polling 15 experts and economists about the movement of the cash rate and the ASX 200, among other things.
Around half of the economists who responded to the last-minute survey (53 per cent, 8/15) expected the RBA to make an emergency cash rate cut this week.
Graham Cooke, insights manager at Finder, said things are changing rapidly.
“Only a few days before the last RBA cut two weeks ago, 85 per cent of economists said they did not expect a cut and only half thought the ASX 200 would drop by 10 per cent in value,” he said.
“Within a week, we had a cut and a 20 per cent drop. This signals the sheer severity and speed of the coronavirus impact.”
