The economic response to COVID-19 continues to evolve swiftly with Treasurer Josh Frydenberg today stating that the Government is considering measures today that weren’t on the table a week ago, signalling a potentially much larger second round of stimulus yet to be finalised.
Travel ban on non-Australian residents to Australia
International visitors to Australia is currently sitting at one-third of what they usually are for this time of year, with countries around the world closing down their borders. From tomorrow night there will be a complete travel ban for all international visitors to Australia. This is in response to 80% of COVID-19 cases in Australia traced back to either returning travellers or contact with someone from overseas.
Providing liquidity into the Australian market
Governor Philip Lowe from the RBA today stated that Australia's financial system is resilient and well placed to deal with the effects of the coronavirus and new measures announced today are particularly aimed at supporting businesses and the price of credit. A comprehensive package has been designed, including:
- A reduction in the cash rate target to a historic 0.25 per cent.
- A target for the yield on 3-year Australian Government bonds of around 0.25 per cent.
- Purchases of Government bonds in the secondary market. These purchases will commence tomorrow.
- A term funding facility for the banking system, with particular support for credit to small and medium-sized businesses.
- The Reserve Bank will provide a three-year funding facility to authorised deposit-taking institutions (ADIs) at a fixed rate of 0.25 per cent. ADIs will be able to obtain initial funding of up to 3 per cent of their existing outstanding credit. They will have access to additional funding if they increase lending to business, especially to small and medium-sized businesses. This facility is for at least $90b.
- The Reserve Bank will continue to provide liquidity to Australian financial markets by conducting one-month and three-month repo operations in its daily market operations until further notice. In addition, the Bank will conduct longer-term repo operations of six-month maturity or longer at least weekly, as long as market conditions warrant.
In addition, the Federal Government has announced an investment of up to $15b to enable smaller lenders to continue supporting Australian consumers and small businesses, complementing the RBA’s $90b term funding facility.
The Australian Office of Financial Management (AOFM) will provide the $15 billion through wholesale funding markets used by small banks and non-bank lenders.
The Federal Government has also developed a program of support for the non-bank financial sector, small lenders and the securitisation market, which will also be implemented by the AOFM.
The Prime Minister highlighted the strong alignment between the Government and the Reserve Bank of Australia to support small and medium sized businesses weather the economic uncertainty.
Further details of the second stimulus to come.
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