Thursday’s widely-anticipated emergency rate cut means the central bank will also pull the trigger on its first-ever quantitative easing program in a bid to boost cash supply and encourage lending and investment.

The RBA had already reduced the cash rate to 0.5 per cent at its regular meeting this month in a bid to buttress the economy amid rising fears of a coronavirus-induced recession.

Governor Philip Lowe said on Thursday the RBA would buy Australian government bonds in the secondary market with a target yield on three-year bonds of around 0.25 per cent.

It will also provide a term funding facility for the banking system, with particular support for credit to small and medium-sized businesses.

This will be achieved through purchases of Government bonds in the secondary market.

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.

The Aussie dollar bounced on the announcement, jumping from a near 18-year low 55.41 US cents to 55.55 US cents by 1435 AEDT.

– AAP