RBA ready to spend billions to save Aussie markets
The nation's central bank says it is ready to plough billions of dollars into markets to keep the economy functioning as the coronavirus stifles economic activity.
Reserve Bank governor Philip Lowe said "trading liquidity has deteriorated in some markets" and action was needed.
A statement from Mr Lowe said his institution "stands ready" to purchase Australian government bonds in the secondary market "to support the smooth functioning of that market".
"(This) is a key pricing benchmark for the Australian financial system," Governor Lowe said.
The statement suggests the RBA is ready to undertake "quantitative easing', which is a form of monetary policy used when interest rates have already been reduced to near zero.
Basically, in quantitative easing the central bank creates new money by electronically expanding its balance sheet.
It was used extensively during the global financial crisis by nations including the United States.
At the same time the RBA said it would also bolster cash in the system via the "repurchase agreement" market - commonly known as "repo" deals.
While corporate Australia holds a great deal of lucrative government bonds, the fears of a coronavirus driven recession at the moment mean they suddenly need a lot more cash.
The actions today means corporate Australia will be able to swap those lucrative bonds back for a short period and access more cash and then later on repay that cash when market turmoil eases.
That is when a security is sold and later brought back for an agreed price.
"The Bank will also be conducting one-month and three-month repo operations in its daily market operations until further notice to provide liquidity to Australian financial markets."
"In addition the Bank will conduct longer term repo operations of six-months maturity or longer at least weekly, as long as market conditions warrant."
He said the bank will announce further policy measures to support the Australian economy on Thursday.
"As Australia's financial system adjusts to the coronavirus, financial regulators and the Australian Government are working closely together to help ensure that Australia's financial markets continue to operate effectively and that credit is available to households and businesses."
Meanwhile, the corporate regulator - the Australian Securities and Investments Commission - said it had "taken steps to ensure Australian equity markets remain resilient".
ASIC said the unprecedented trading on Australian markets meant it had to take action now to make sure financial markets could remain "fair and orderly".
It said Friday was particularly hectic.
"While there was no disruption to market operations on Friday, there was a significant backlog of work required to be undertaken over the weekend by the exchanges and trading participants," it said in a statement
"If the number of trades executed continues to increase, it will put strain on the processing and risk management capabilities of market infrastructure and market participants."
"ASIC has issued directions under the ASIC Market Integrity Rules to a number of large equity market participants, requiring those participants to limit the number of trades executed each day until further notice."
"These directions require those firms to reduce their number of executed trades by up to 25 per cent from the levels executed on Friday."
"This action will require high volume participants and their clients to actively manage their volumes. We do not expect these limits to impact the ability of retail consumers to execute trades."