RBA September meeting keeps rates on hold as GDP looms
Keeping rates on hold, the RBA also more than doubled its lending lifeline for banks to accommodate an expected surge in demand for cheap funding.
The Reserve Bank has more than doubled a lending lifeline for the nation’s banks to accommodate an expected surge in demand for cheap funding.
As economists brace for the national accounts on Wednesday – expected to show the largest quarterly decline in GDP on record and confirm the economy has entered a recession – the central bank announced an extension to its Term Funding Facility to $200bn, a discount line of credit available to banks.
“This extension will ensure that all ADIs continue to have access to the Term Funding Facility after the end of September, when the window for drawings under the initial allowance of 3 per cent of outstanding credit closes,” RBA governor Dr Philip Lowe said in a statement.
“This will help keep interest rates low for borrowers and support the provision of credit by providing ADIs greater confidence about continued access to low-cost funding,” he added.
Banks so far have borrowed $52bn under the Term Funding Facility, which was originally capped at $90bn when it was announced in March.
In a statement, Dr Lowe said the RBA would keep targeting a cash rate of 0.25 per cent and keep the maintain a yield of 0.25 per cent on 3-year federal government bonds by standing ready to buy and sell them in the market.
“The board will maintain highly accommodative settings as long as is required and continues to consider how further monetary measures could support the recovery. It will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band,” Dr Lowe said.
The widely expected decision – the RBA has not changed monetary policy since an emergency meeting in March when it announced a quantitative easing program – came a day ahead of the release of the June quarter national accounts, which economists expect to reveal two consecutive quarters of negative growth, the accepted definition of a recession.
“The June national accounts will be one for the history books. The COVID‑19 pandemic and resultant moves from policymakers to shut down large parts of the Australian economy will have a massive negative impact on production in the June quarter,” said Commonwealth Bank economist Gareth Aird.
CBA is expecting an economic contraction of 5.4 per cent over the three month period. The Reserve Bank expects the June quarter GDP to be 6 per cent smaller than the same quarter last year.
Border restrictions contributed to a sharp increase in the economy’s current account balance in the June quarter, the ABS said on Tuesday, because Australians have tended to spend much more on overseas holidays (classed as an import) than foreigner spend in Australia (considered an export).
The current account balance was $17.7bn in the second quarter, up by $8.7bn from the first quarter,
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