A piece on the Reserve Bank of Australia in the Australian Financial Review this morning (Monday 1 November 2021).
- Economists warn that the RBA could be forced to scrap its multibillion-dollar dividend to the government and potentially require a capital injection from the Treasury.
- The RBA has lent $188 billion to commercial banks through its novel term funding facility (TFF)
- The RBA credit facility fixed the borrowing rate as low as 0.1 per cent for commercial banks for three years through to mid-2024
- commercial banks earn a variable interest rate in line with the RBA cash rate on about $400 billion of deposits parked at the central bank
- if the RBA did raise interest rates, it would need to compensate the banks at the new higher cash rate, “opening up a scenario where the RBA will need to request a recapitalisation from Treasury”.
- “With just one rate hike of 25 basis points, the TFF becomes a negative carry trade for the RBA”
Bolding above is mine.
The RBA meet tomorrow, Tuesday 2 November 2021. Last week from the RBA:
The RBA meeting is Tuesaday, which is the day of Australia’s biggest annual horse race, the Melbourne Cup. Lowe’s best chance might lay in having some money on the nag that wins.