Australia central bank holds rates, expands bank funding scheme - Inside Financial Markets

Australia central bank holds rates, expands bank funding scheme

Australia’s central bank on Tuesday unexpectedly boosted the size and term for cheap funding to lenders as the economy looked set to post to its worst contraction since the Great Depression due to the coronavirus pandemic.

The Reserve Bank of Australia (RBA) kept rates at 0.25%, in a widely expected move, and said it would increase the size of its term funding facility to around A$200 billion ($148.08 billion) at a fixed rate of 25 basis points for three years.

Banks will be able to draw up on this extra funding up until the end of June 2021.

“This will help keep interest rates low for borrowers and support the provision of credit by providing (banks) greater confidence about continued access to low-cost funding,” RBA Governor Philip Lowe said in a post-meeting statement.

The RBA also hinted at further measures, while reiterating policy rates will remain low for a long time to come.

“The Board will maintain highly accommodative settings as long as is required and continues to consider how further monetary measures could support the recovery,” he said.

The RBA had in March slashed the cash rate to a record low 0.25% and launched an “unlimited” bond buying programme.

The bank has since bought A$66 billion of government securities and is open to further purchases to keep three-year yields around 0.25% until it meets its inflation and employment goals.

The emergency support package comes as Australia finds itself in the midst of its worst contraction since the Great Depression and the first in three decades.

Indeed, data due to Wednesday is likely to show a record 6.0% contraction as the struggle to contain the coronavirus pandemic shut down whole sectors of the economy.

Syed Zaki Hussain

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