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Via Financial Times

Australian central bank moves to boost liquidity

Jamie Smyth reports from Sydney

Australia’s central bank said on Monday it would pump more cash into the financial system to tackle a liquidity squeeze and financial regulators said they were considering easing regulatory conditions due to the coronavirus crisis.

“The funding position of the banking system is strong,” said Australia’s Council of Financial Regulators, which is chaired by Philip Lowe, governor of the Reserve Bank of Australia, on Monday.

“At the same time, trading liquidity has deteriorated in some markets and financial institutions are having to adjust to a more volatile environment.”

The Council said the RBA would conduct one month and three month repurchase operations to help boost banks liquidity and prevent a cash squeeze affecting cash strapped businesses. In addition, the RBA will conduct repo operations of six-months maturity or longer at least weekly, as long as market conditions warrant, said the Council.

Richard Yetsenga, chief economist at ANZ Bank, said by enabling financial institutions to lend their holdings of government bonds to the RBA in exchange for cash, authorities were acting to limit the risk of liquidity shortages.

“This is a strong policy step… markets are now focused on virtually all central banks taking rates to zero, and resorting to quantitative easing; including Australia,” said Mr Yetsenga.

The council said it would meet with Australia’s main lenders later this week to discuss how they could best support customers through the crisis.

In addition, the council said financial regulators are examining how the timing of regulatory initiatives might be adjusted to allow financial institutions to concentrate on their businesses and assist their customers.

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These actions, which could include easing the introduction of tougher capital requirements, would emphasise the importance of a continuing supply of credit, particularly to small businesses.

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