Australia’s central bank injected an unusually large amount of cash into the financial system on Friday.
Low-interest rates will cushion the economic fallout from the coronavirus outbreak, the Reserve Bank believes, even if consumers do not use the money straight away.
This caused by panic selling across global markets. Moreover, the coronavirus outbreak drove to drain liquidity and push up borrowing costs.
According to The Sydney Morning Herald, the bank believes the impact of the virus on the combined international student and tourism sectors. It will take 0.5 percentage points off growth through the first quarter of this year. That is in line with Treasury forecasts but excludes large parts of the economy such as the retail sector.
According to Reuters, the Reserve Bank of Australia (RBA) pumped A$8.8 billion ($5.52 billion) into the system through repurchase agreements. It occurs in its daily money market operation. The estimated requirement was well above A$3.4 billion.
Australia’s main stock index was down 7% on Friday, bringing losses for the week so far to an eye-watering 20%.
There was leaning money for periods from 17 to 95 days. A$5.6 billion were going on the longest date.
The head of bond and rates strategy at CBA, Martin Whetton, said that “There’s definitely strains in the market. And also, the RBA has acted to add extra liquidity to offset that.”
There was a fund injection for $500 billion into the banking system. The U.S. Federal Reserve on Thursday was surprised knowing that fact. In addition, it intends to add a further $1 trillion on Friday.
“The bank had not seen much stress in the market, but that was before the latest plunge in global equities,” said Guy Debelle, RBA Deputy Governor earlier in the week.
