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Free AccessMNI REVIEW: Funding Scheme Boosted As RBA Targets Recovery
Term Funding Facility Increased From AUD 90 Bln To AUD200 Bln, Runs Thru June 2021
Policy Rate Unchanged at 0.25%, With 3-Year Yield Target Maintained At 25 bps
The Reserve Bank of Australia left its key policy targets unchanged at its September meeting, but increased the size and duration of its funding facility for commercial banks as policymakers look to the economy's recovery phase.
The official cash rate was left unchanged at the record low of 0.25% for a sixth consecutive month with the 25 bps target for the benchmark 3-year government bond also maintained.
However, the RBA announced an expansion of the Term Funding Facility, originally announced in March, from AUD90 billion to around AUD200 billion under a formula based on a percentage of outstanding credit extended by Australia's authorised deposit taking institutions.
The TFF, under which ADI's have drawn down AUD52 billion in the last six months, will be extended until the end of June 2021. The facility gives ADI's access to funds at 0.25% on the condition that they are used for business lending.
RECOVERY
The RBA said that while the economy was going through the biggest contraction since the 1930s, the downturn "is not as severe as earlier expected and a recovery is now under way in most of Australia", although and bounceback was likely to be "both uneven and bumpy," with the renewed coronavirus outbreak in Melbourne and surrounding areas having a major impact on the Victorian economy.
The RBA said it would be some months before there was any meaningful recovery in the labour market, and under its baseline scenario unemployment -- at 7.5% in July -- would rise to around 10% later this year and would only fall to around 7% in two years' time.
The economy was being supported by fiscal policy and monetary easing, while both public sector and commercial banks' balance sheets were strong, with access to high levels of liquidity.
The RBA said it would maintain its current "highly accommodative settings" for as long as required, and said there would be no increase in the cash rate until progress was made towards full employment and inflation,which stood at 1.9% in Q2, returned to the 2-3% target range.
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Why MNI
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of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.