Coronavirus: Scott Morrison to unveil huge package of fiscal and monetary measures

Scott Morrison is preparing to unleash a huge coronavirus economic package which mirrors the ‘wartime’ measures introduced in the UK.

Scott Morrison is preparing to unleash a huge fiscal and monetary policy package designed to deal with the coronavirus, in moves that will largely mirror the “wartime” initiatives unveiled overnight by Boris Johnson’s government in Britain.

The federal Government is understood to be applying the finishing touches to a series of far-reaching announcements scheduled to be made in the coming days and designed to cushion the impact of the virus.

Financial regulators including the Reserve Bank of Australia and the Australian Prudential Regulation Authority are also likely to play a role in seeking to reassure businesses and consumers that the economy will continue to function.

When RBA governor Philip Lowe unveiled a package of measures to stimulate the economy on Monday, he also flagged a brace of further announcements on Thursday.

The markets overwhelmingly believe there will be a further 25 basis-point cut in official interest rates to 0.25 per cent, kicking off a program of so-called quantitative easing, which involves purchases of government bonds to ensure interest rates remain low.

While the benefit of a further rate cut is debatable, the government is desperate to avoid a spike in unemployment.

Mr Morrison hinted at another round of measures to “cushion” the impact of the virus at a press conference on Wednesday.

“Last week, we focused very much on the stimulus type activity, encouraging investment, encouraging demand into the economy. Providing support to small business,” he said.

“Measures that we are focusing on now are of a different nature. They are focused more on the cushioning impact of the safety net for individuals and small businesses.

“We are putting in place further measures and we will announce them once they’ve been properly designed and they can be properly implemented.”

Westpac chief economist Bill Evans predicted in a note on Wednesday that the nation’s unemployment rate would spike to 7 per cent in October, up from his previous forecast of 5.8 per cent to 6 per cent due to the abrupt slowdown in the economy.

Global credit rating agency Standard & Poor’s forecast a global recession in 2020, with worldwide growth in a range of 1 per cent to 1.5 per cent.

Local stocks reflected the bleak outlook, trading 5 per cent lower at 1pm despite Wall Street rebounding strongly overnight as investors focused on policy efforts to counter the fallout from the crisis.

Hitting GFC levels

A senior banker told The Australian that bank wholesale funding costs had blown out to levels not seen since the 2008 financial crisis.

“We have to lower the lower yield curve so that we can fund our lending,” he said.

The banks have also been urging the government and regulators to provide relief from “unquestionably strong” capital ratios enforced by APRA.

This would enable them to lend more to customers without fear of breaching their minimum, 10.5 per cent capital ratios.

The biggest policy move, however, is likely to mirror the British Government’s emergency initiative overnight to “backstop” £330bn in bank loans to stop businesses going bust.

The value of the initiative is equal to about 15 per cent of the country’s gross domestic product.

“That means any business who needs access to cash to pay their rent, their salaries, suppliers or purchase stock will be able to access a government-backed loan or credit on attractive terms,” UK chancellor Rishi Sunak said.

“And if demand is greater than the initial £330bn [for loans] I’m making available today, I will go further and provide as much capacity as required. I said whatever it takes, and I meant it.”

British Prime Minister Boris Johnson said during the same media briefing that “we must act like any wartime government and do whatever it takes to support our economy”.

“This a time to be bold, to have courage. We will support jobs, we will support incomes, we will support businesses,” Mr Johnson said.

“We will do whatever it takes.”

Meanwhile, US president Donald Trump is pushing Congress to approve an aggressive $US1 trillion ($1.67 trillion) stimulus plan that would send cheques to households within two weeks, provide tax relief, and bolster airlines and other hard-hit sectors to keep the economy afloat.

“We’re going big,” said Mr Trump on Tuesday.