March 18, 2020 / 5:49 AM / 12 days ago

UPDATE 1-Australia c.bank to make policy announcement at 0330 GMT Thursday

(Adds economist comment, market reaction)

By Swati Pandey

SYDNEY, March 18 (Reuters) - Australia’s central bank will make a monetary policy announcement at 2:30 p.m. (0330 GMT) on Thursday in which economists expect it to cut interest rates and launch its first ever quantitative easing programme.

The Reserve Bank of Australia (RBA) had already said that Governor Philip Lowe would give a speech and hold a conference call at 0500 GMT, but the timing and the fact it was a monetary policy announcement was only stated on Wednesday afternoon.

Markets widely expect the RBA to cut its cash rate a quarter point to 0.25% on Thursday and announce a move to quantitative easing, including buying government bonds.

The RBA’s announcement follows an unprecedented and large step up in global coordination by central banks, governments and regulators since the start of this week to cushion the economic impact of the coronavirus.

The U.S. Federal Reserve on Sunday slashed key rates by 100 basis points, boosted asset purchases and has since flushed the system with liquidity.

Supporting those steps, the U.S. government unveiled a $1 trillion stimulus package on Tuesday. Britain too announced a $400 billion rescue package for businesses while Australian Prime Minister Scott Morrison flagged fiscal measures will be announced soon.

On Thursday, economists expect the RBA to provide more clarity and details on its bond buying programme, including target and tenor.

More tailored measures are also expected such as a UK-style Term Funding Scheme whereby the RBA would provide cheap loans to banks on the condition they lend to businesses at a favourable rate.

The purchase of semis, or state government bonds, and residential-mortgage backed securities (RMBS) are also possibilities.

In recent days, the RBA has pumped more money into the system while also substantially lengthening the average tenor of lending.

The RBA said earlier this week it would conduct repo operations of six-months maturity or longer at least weekly, “as long as market conditions warrant.”

While the measures are welcome and desperately needed, economists said they still won’t be enough to prevent the country’s first recession in nearly three decades.

“Unfortunately we expect the economic impact of COVID-19 to tip the economy into recession,” economists at ANZ said, predicting GDP to shrink 2% in the second quarter alone.

“Policy stimulus will help, but it won’t be able to offset the demand loss that will come from social distancing and widespread closures.”

$1 = 1.6622 Australian dollars Reporting by Wayne Cole; Editing by Tom Hogue and Sam Holmes

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