RBA adds $5.9b to system

Funds part of package to make credit available

THE Reserve Bank has pumped extra liquidity into the banking system, as part of a package of measures aimed at ensuring business and households have access to credit as the coronavirus causes chaos in global financial markets.

The RBA used its daily money market operation to add $5.9 billion to the system through regular repurchase agreements, well above its original intention of $2.5 billion.

That followed an injection of $8.8 billion on Friday, which had left commercial banks with a hefty $10.7 billion of surplus

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Change cash held at the RBA. Yesterday’s operations ranged from four days to 93 days, with $4.6 billion going at the longest maturity.

Earlier, the RBA said it would be conducting onemonth and three-month repurchase (repo) operations until further notice.

It will also conduct repo operations of six months maturity or longer at least weekly, as long as market conditions warrant, as part of a package of liquidity measures from Australia’s Council of Financial Regulators. The CFR said financial regulators and the government were working closely together to help ensure financial markets continued to operate effectively and that credit was available to households and businesses.

The steps followed a move by major central banks to offer global markets cheap US dollar funding, while the US Federal Reserve cut its interest rates by 100 basis points to between 0 and 0.25 per cent in another emergency move on Sunday.

“Australia’s financial system is resilient and it is well placed to deal with the effects of COVID-19,” the CFR said in a statement. “The banking system is well capitalised and is in a strong liquidity position. Substantial financial buffers are available to be drawn down if required to support the economy.”

Analysts fear economic activity will contract in the current March quarter as the virus hammers tourism and trade, raising the risk the country could skid into since 1991.

The council includes the RBA, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission and the Australian Treasury.

APRA and ASIC said they would take banks’ circumstances into account when administrating regulations and laws to make it easier for them to keep lending. The CFR said it would meet with major lenders later this week to discuss how they could best support households and businesses. its first recession