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RBA Official Says Stimulus Kept Funding Costs Low, Ensured Credit Supply

Various stimulus measures adopted by the Reserve Bank of Australia since March have achieved their objective in keeping funding costs low and ensured credit supply, especially to small businesses, Reserve Bank of Australia's Head of Domestic Markets Marion Kohler said in a speech on Thursday.

In March, the central bank had cut the key interest rate by 50 basis points in two sessions and announced asset purchases, in response to the risks posed by the economic disruption caused by the coronavirus, or Covid-19, pandemic.

"The cash rate reductions have flowed through in full to interest rates on outstanding business loans," Kohler said citing data.

Interest rates on business loans have declined to historically low levels and they have fallen by much more than the cash rate reductions, the official said.

Meanwhile, the volume of lending to small and medium enterprises, or SMEs, has been little changed since the onset of the pandemic, Kohler pointed out. This could be due to a lack of demand for new loans, due to the heightened uncertainty for many small businesses in the current environment, she said.

At the same time, banks are also more cautious about lending to businesses, especially to new businesses and to businesses in those sectors most affected by the pandemic, the official said.

Further, the policy package put in place in March is working to lower borrowers' interest rates and ease their loan payment burdens as housing loans are refinanced, she said. As lockdown rules were relaxed, lending for new housing loans also picked up.

Personal credit shrunk drastically over the past six months amid the implementation of Covid-19 containment measures and the recent developments have worked to reduce the stock of outstanding credit card debt, Kohler said.

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