RBA extends funding facility

  • By AB+F Editorial

The central bank kept the cash rate at 0.25 per cent while announcing that it would extend its Term Funding Facility.

Under the expanded scheme, banks will have access to extra funding. This is equivalent to 2 per cent of their outstanding credit at a fixed rate of 25 basis points for three years. This amounts to $57 billion. 

The bank has also extended the deadline for drawdowns of the additional funding allowance based on a bank's lending to businesses from 31 March 2021 to June 2021.

The additional funding allowance, which can rise or fall with an ADI's lending to businesses, was $68 billion across all ADIs at the start of September. 

The total amount available under this facility to around $200 billion and is essentially more for longer. 

The initiative was first launched in March as the health pandemic unfolded with the aim of lowering borrowing costs and therefore support lending particularly to businesses. 

In a statement, RBA governor Philip Lowe said that the move will provide ongoing support for the economy and ensure ongoing adequate liquidity in the financial system as well keep funding costs down. 

To date, banks have dawn $52 billion under the TFF and the bank expects further drawings over the coming weeks particularly by the larger banks. 

According to Lowe, this will help keep interest rates low for borrowers and support the provision of credit by providing ADIs greater confidence about continued access to low-cost funding.

“The expansion of the TFF appears to reflect an appreciation of the fact that the ongoing severity of the COVID crisis - both in terms of the hit already to activity and ongoing uncertainty - require an extension of the remit of the original parameters,” GSFM investment strategist Steve Miller said.