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RBA downplays bank levy impact

The Reserve Bank of Australia has played down the significance of the government's bank levy, noting it is "not particularly large" compared to movements in bank funding costs.

The minutes of a recent RBA monetary policy meeting revealed there was likely to be some effect on the cost of wholesale funding for smaller financial institutions from the rating downgrade, but these institutions accessed less wholesale funding than the major banks.

It said that, more broadly, bank funding costs were estimated to have declined a little further in recent months.

In its analysis of the RBA minutes, Citi said the levy was introduced at a time when bank funding costs were estimated to have declined, adding that the minutes "didn't discuss broader issues around the levy's imposition".

Citi said, overall, there was more colour in the minutes but nothing that would surprise markets.

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"While the RBA remains constructive on the prospects for a return to trend growth and a return of underlying inflation to the target, we believe that it won't be until later next year before the RBA is sufficiently confident to tighten monetary policy," Citi said.

[Related: Latest rate hike 'no in response to bank levy']

RBA downplays bank levy impact
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