Powered by MOMENTUM MEDIA
realestatebusiness logo

Subscribe to our newsletter

RBA backs stimulatory impact of expanded TFF

The central bank is expecting lenders to exhaust the $200 billion in low-cost funding offered via the term funding facility, helping to accelerate the recovery from the COVID-19 crisis.

In an address to the IFR Australia DCM Roundtable, assistant governor of the Reserve Bank of Australia (RBA) Christopher Kent discussed the evolving role of monetary policy in an unprecedented global economic environment.

Mr Kent noted that the RBA’s local response to the COVID-19 crisis has made the task of assessing the stance of monetary policy “very different and more complex than it used to be”.

“Some of the tools influence interest rates directly in a way that gives us greater control over a wider range of rates than previously,” he said.

“In particular, forward guidance and the three-year yield target have supported historically low borrowing rates at this maturity.

Advertisement
Advertisement

“Other elements of the package affect interest rates indirectly and are harder to assess.”

However, the deputy governor noted that the impact of the RBA’s stimulus package can be gauged by considering the effect on the central bank’s balance sheet.

Mr Kent pointed to the impact of the term funding facility (TFF), which was recently expanded by $57 billion to approximately $200 billion.

The assistant governor said he expects banks – which, as at the RBA’s last monetary policy meeting, drew down approximately $84 billion – to exhaust the TFF in the coming months, helping to drive down interest rates and stimulate investment activity.   

“We expect that much of this extra funding will be drawn upon in time, for the simple reason that it will be profitable for banks to do so,” he said.

“When this happens, a new, long-lived asset will be added to the Reserve Bank’s balance sheet.

“The banks will use the funds to write loans to businesses and households, buy securities, or repay debt, all of which will serve to lower interest rates in the economy and extend funding to the private and indeed the public sector.”

This comes less than a week after RBA governor Philip Lowe hinted at further reductions to the cash rate.

Governor Lowe said the RBA had not been convinced that further cuts would deliver “better economic outcomes”, but has now conceded they may have a role to play in supporting fiscal stimulus provided by the federal government.

Both Westpac chief economist Bill Evans and NAB Group Economics have forecast a 10 bps cut to the cash rate next month, aimed at supplementing stimulus announced in the federal budget.

[Related: RBA paves way for November cut]

RBA backs stimulatory impact of expanded TFF
RBA backs stimulatory impact of expanded TFF
mortgagebusiness

Latest News

The brokerage has teamed with the fintech, for the launch of a new app that will let borrowers compare pricing and environmental impact acro...

The desire to secure a mortgage has collapsed across the country, according to a new analysis from Equifax. ...

The Reserve Bank will be closely watching how households respond to higher rates as it decides its next move, ANZ senior economists have sai...

VIEW ALL

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

What is the maximum proportion of income borrowers should use to service a mortgage?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.