Economy

RBA policy meeting: Cash rate held, bank support expanded

RBA policy meeting: Cash rate held, bank support expanded”

Essentially, the Term Funding Facility was introduced by the RBA in mid-March as a way to encourage banks, or authorised deposit-taking institutions (ADIs), to pass on lower interest rates to borrowers.

So far, ADIs have drawn $52 billion under the Term Funding Facility, with a total $200 billion available after today's changes.

When asked when Aussies could expect banks to make the move, half of the respondents said banks were likely to announce out-of-cycle rate hikes during the first half of 2021. However, the RBA Governor said it's not as bad as initially thought.

Dr Lowe said in his statement that the economy was going through a "very hard period" but it was not as severe as originally feared.

By contrast, the spread between average 3-year fixed mortgage rates and deposit rates was a record low 1.7% in July, which is well below the long-term average of 2.7%.

Gareth Aird, senior economist at Commonwealth Bank of Australia, said Mr Lowe's addition to the final paragraph was very important.

"Employment increased in June and July, although unemployment and underemployment remain high", Dr Lowe said in the statement.

"In the Bank's central scenario, the unemployment rate rises to around 10 per cent later in 2020 and then declines gradually to be to still around 7 per cent in two years' time". Other forecasts have a slightly lower peak of around 9% or so, but with a slow improvement over the next two to three years.

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"Wage and prices pressures remain subdued and this is likely to continue for some time".

"The economy is being supported by the substantial, coordinated and unprecedented policy easing over the past six months".

"Fiscal and monetary support will be required for some time given the outlook for the economy and the prospect of high unemployment", commented Lowe.

The RBA is coordinating with the government's wide-ranging stimulus programme by keeping rates near zero and purchasing bonds to keep borrowing costs down across the economy.

The central bank has bought about A$60 billion of government securities since it initiated the bond-buying program in March and Lowe said more would be undertaken as needed.

The Australian dollar has gone back and forth during the trading session so far on Monday, as it looks like the market is taken a bit of a breather after the massive move on Friday. The yield target will remain in place until progress is being made towards the goals for full employment and inflation, the statement said.

The start of month figures from CoreLogic revealed showed Melbourne suffered the biggest fall in house prices in August of any major capital city.

Indeed, data due on 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.



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