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MNI POLICY: RBA Relaxed As Banks Dash For Cash Amid Volatility

MNI (PERTH)
MNI (Perth)

The Reserve Bank of Australia views local banks as well positioned to raise funds needed to pay back AUD188 billion loaned to them via its Term Funding Facility despite market volatility in recent weeks sparked by higher global rates and U.K. political chaos, MNI understands.

There should be only a modest impact on mortgage rates as banks boost wholesale borrowing to pay back TFF loans, which accounted for around 4% of their non-equity funding. While U.S. wholesale rates have risen, Australian banks swap the proceeds into Australian dollars.

The RBA is understood to view recent global market volatility as a byproduct of the macroeconomic environment and political uncertainty rather than a reflection of market dysfunction.

The banks have been encouraged by the RBA and the Australian Prudential Regulation Authority to get on with raising funds, a task which the RBA's Financial Stability Review referred to as "sizeable but not unprecedented." The funds are due to be repaid in September next year and June the following year. Three-year funding was initially provided at 0.25% before being lowered to 0.1%.

The push to repay TFF funds comes as banks' net interest margins have been supported by higher interest rates and the reluctance to pass on in full the RBA's 250bps of hikes since May to depositors, an important source of funding. The RBA is expected to raise rates by 25bps when it meets on Nov 1. (See MNI STATE OF PLAY: RBA Taps Brakes, Sees Slower Pace Of Hikes)

Australia's biggest banks will provide an update on their funding profiles when they release full-year profit results over the coming weeks. Australia and New Zealand Banking Corp will be the first of three of the big four to report, on Oct 27. Westpac reports on Nov 7 and National Australia Bank on Nov 9. Commonwealth Bank will release a first quarter update on Nov 15.

Robert covers RBA and RBNZ policy and the economy for MNI in Australia.
Robert covers RBA and RBNZ policy and the economy for MNI in Australia.

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