Reserve Bank governor Philip Lowe says while the coronavirus is first and foremost a public health issue, it is having a "very major impact" on the economy and financial system.

"Understandably, our communities and our financial markets are both having trouble dealing with a risk they haven't seen before, and a rapidly unfolding situation," Dr Lowe told reporters after the decision.

"Undeniably, what we are facing today is a very serious situation but it's also something that's temporary."

That was not to downplay the fact that there had been "major disruptions to economic activity across the world".

"This is likely to remain the case for some time yet as efforts continue to contain the virus."

At an emergency meeting on Thursday, the central bank agreed to slash the cash rate to 0.25 per cent, the lowest in Australia's history.

It will also start buying government bonds, a move that would flood Australia's financial system with extra cash to keep the economy functioning smoothly during the crisis.

As well, it will set up a three-year $90 billion fund for banks to help small- and medium-sized businesses keep their heads above water, and ease some regulatory pressure on the banks to allow them to keep the money flowing.

Banks will be able to start accessing the fund by April 16.

Dr Lowe said these measures complemented the government's economic stimulus package, which so far is $17.6 billion but is set to be expanded in coming days.

Treasurer Josh Frydenberg has also announced the government would pour $15 billion into smaller lenders.

Prime Minister Scott Morrison hinted the government's next package will include income support and easing the obligations of welfare recipients.

He said the government had been talking to banks about not foreclosing on people's mortgages.

"That's what cushioning the blow is all about," he told reporters in Canberra.

"We're looking at those issues around income support, we're looking at those issues around people's obligations."

The spread of the coronavirus in Australia and across the world has cemented the likelihood the national economy will fall into recession this year, as consumer spending and productivity slumps.

The economy could contract by as much as two per cent in the June quarter, economists say, risking a rise in unemployment to almost eight per cent, from 5.1 per cent now.

Shadow treasurer Jim Chalmers said despite the good work of the Reserve Bank the government's announcements to date had been insufficient.

"Now is not the time for half measures," he said.

"This unfolding economic crisis demands urgency, scale, and coordination among all of the decision makers in our economy."

Australian Associated Press