The Australian central bank yesterday injected A$6.9 billion (US$4.11 billion) into the country’s financial system, saying that it would buy A$4 billion in government bonds as it looks to blunt the economic fallout from the COVID-19 pandemic.
The Reserve Bank of Australia has flooded the system with nearly A$65 billion of cash since March 12 when a liquidity crunch sent global markets into a tailspin.
It also purchased A$9 billion in government bonds since launching its “unlimited” quantitative easing program on Friday last week.
The central bank has so far been successful in flattening the yield curve, as it aims to keep short-term yields at a cash rate of about 0.25 percent.
Even with the measures, a recession — the country’s first in nearly three decades — seems inevitable.
Westpac Banking Corp economist Bill Evans has revised his unemployment rate forecast, saying that the June quarter would experience a surge to 11.1 percent, up from his previous estimate of 7 percent, with the economy expected to contract 3.5 percent in the period.
“Economic disruptions are set to be larger, as the government moves to address the enormous health challenge that the nation now faces,” Evans said. “That challenge is probably best summarized by a potential shortage of ICU [intensive care unit] beds in coming weeks if we do not significantly slow the rate of infection immediately.”
Secondary data yesterday showed a sharp deterioration in services sector activity this month, underlining the hit from the coronavirus.
The CBA Services purchasing managers’ index fell to a record low of 39.8 points, as restaurants, cafes and tourism have been hit hard by travel bans, and cancelations of events and concerts.
A separate analysis of card spending data by the Commonwealth Bank of Australia showed that shopping outside of grocery items, alcohol and healthcare has been bleak.
A weekly gauge of consumer confidence by ANZ-Roy Morgan plunged to 72.2 points, 30-year low.
The government has responded swiftly, with a stimulus of A$66.1 billion on top of A$17.6 billion announced earlier this month, although economists have said that a third package might be needed.
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