The Reserve Bank (RBA) Governor Philip Lowe released a statement today that said the bank and government were working together to ensure the smooth operation of Australia's financial markets.
"Australia's financial system is resilient and it is well placed to deal with the effects of the coronavirus," Dr Lowe said.
"At the same time, trading liquidity has deteriorated in some markets.
"In response, the Reserve Bank stands ready to purchase Australian government bonds in the secondary market to support the smooth functioning of that market, which is a key pricing benchmark for the Australian financial system."
The announcement comes after the US Federal Reserve and Reserve Bank of New Zealand slashed their interest rates to close to zero overnight.
As well as cutting its interest rate by 1.0% at its unscheduled meeting, the US central bank announced a $700 billion quantitative easing program, in an effort to prevent a financial apocalypse.
In a sign that there could be a second March cash rate cut, Dr Lowe said the RBA would make another announcement later in the week.
"The Bank will announce further policy measures to support the Australian economy on Thursday," he said.
If the Reserve Bank (RBA) were to cut before their scheduled monetary meeting in April it would be unprecedented to say the least.
Even at the height of the global financial crisis (GFC) or post 9/11, the RBA didn't cut the cash rate twice in a month.
But we are living in unprecedented times - COVID-19 has expanded at an exponential level, crippling economies and shutting down borders.
At the weekend Prime Minster Scott Morrison advised gatherings of more than 500 people would be prohibited, and announced that anyone arriving from overseas would be required to self isolate for 14 days.
All these factors, and a great deal more, may lead the RBA to call an emergency meeting, and cut Australia's cash rate to a record low 0.25%.
Most economists have predicted a rate cut in April, but given the severity of the COVID-19 pandemic and the correspondence from the RBA, this could be moved forward.
NAB economist Rodrigo Catril said the US Federal Reserve's moves over the last few days increases the likelihood of an emergency cut.
"NAB has forecast a follow-up 25bp rate cut to 0.25% in April, but fast-changing events mean the risk of an inter-meeting rate cut by the RBA to 0.25% is likely to have increased sharply," Mr Catril said.
"This was not how the RBA behaved during the global financial crisis or even after the 9/11 terrorist attacks, preferring to move at scheduled Board meetings.
"However, with the next Board meeting still three weeks away on April 7 and the world and Australian economies continuing to rapidly deteriorate, there seems little point in waiting three weeks to deliver further support to the Australian economy on the interest rate front."
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