December 2020
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The Term Funding Facility
The Reserve Bank's Term Funding Facility (TFF) was announced in March as part of a monetary policy package to reduce funding costs across the economy and to support lending, especially to small and medium-sized businesses. Most of the initial allocations of the TFF were drawn upon by the time the first phase of the facility closed in September. In September, the Reserve Bank Board adjusted the TFF in response to economic conditions, expanding and extending the facility and in November it lowered the interest rate on new drawings. Drawdowns from the TFF have increased the Reserve Bank's balance sheet significantly and the facility has contributed to an easing in financial conditions. As a result of the Reserve Bank's policy measures, including the TFF, bank funding costs and lending rates are at historically low levels.
A Counterfeit Story: Operation Gridline
In 2019, the counterfeiters responsible for the production of a group of high quality $50 and $100 counterfeit banknotes were sentenced. From first detection at the Reserve Bank's Counterfeit Examination Laboratory, through police investigation, arrest and finally prosecution and sentencing, this counterfeit episode was resolved reasonably quickly. This experience highlighted the benefits of collaboration between the Bank, federal and state police and legal authorities, and how such a collective effort can be very effective in the disruption of counterfeit production and distribution in Australia.
Governance of Financial Market Infrastructures
Good governance is critical to delivering effective risk management outcomes. Several high-profile reports have underscored this point in recent years, finding governance issues to be at the heart of poor compliance and risk management outcomes in the financial industry. Given the key role that financial market infrastructures (FMIs) play in supporting efficient and stable markets, the RBA has a strong interest in promoting good governance within these entities. This article explores aspects of FMI governance and how governance arrangements can help promote the safe and effective delivery of FMI services.
Secondary Market Liquidity in Bonds and Asset-backed Securities
Liquidity is an important measure of health and stability in financial markets. This article assesses liquidity in markets that trade Australian fixed income securities by analysing market turnover using data for the period 2015–17, which was one of relative calm. We find heterogeneity across these markets. Australian and State Government bonds have higher turnover than other securities. Turnover was generally higher for larger bond lines, but not universally so. In particular, there is relatively high turnover in a number of small asset-backed security lines.
The COVID-19 Outbreak and Australia's Education and Tourism Exports
International travel restrictions to contain the spread of COVID-19 and precautionary behaviour on the part of travellers have significantly disrupted the movement of people globally. Education and tourism were Australia's fourth and fifth largest exports prior to the pandemic, and exports of these services have fallen sharply. This article documents the effects of the virus on Australia's education and tourism exports and draws on information from the Reserve Bank's regional and industry liaison program to discuss the uncertainties around the medium-term outlook once international travel resumes.
Long-term Unemployment in Australia
Are your future employment prospects affected by past periods of unemployment? And does it matter how long you were unemployed? The average duration of unemployment has increased steadily over the 2010s. At the same time, the rate at which unemployed people are able to find a job has slowed. Long-term unemployed people are more likely to be older and male and have lower levels of formal education than those who have been unemployed for a shorter period. We use micro-level labour market data to show that future employment prospects are closely tied to the duration of unemployment: people who are unemployed for longer are less likely to find a job. We also find some evidence that an extended period of unemployment can harm people's employment chances for a long time afterwards.
The Response by Central Banks in Advanced Economies to COVID-19
Central banks in advanced economies have employed a wide range of tools to support their economies and financial systems during the COVID-19 pandemic. Some measures have involved scaling up standard central bank tools or reactivating facilities introduced during the global financial crisis. Other measures are new innovations. The speed at which these tools were deployed and scale of their usage has been unprecedented. These measures have helped to restore functioning of financial markets, lower interest rates, and support the flow of credit to borrowers.
Economic Developments in India
Over recent decades, India's rapid economic growth has led to a substantial increase in its demand for Australian exports. However, India is currently facing the most significant setback to its economic development in decades as a result of COVID-19. Like in many other economies, the pandemic has severely affected near-term economic activity and exacerbated existing vulnerabilities in the Indian economy. While it will take some time for the Indian economy to recover, underlying fundamentals should support growth in the long term. This in turn should increase demand for some key Australian exports such as coking coal and education services, and so India will likely remain an important trading partner for Australia. The outlook for other resource exports such as iron ore and thermal coal is less positive because India is expected to be self-sufficient in these commodities.
Shadow Financing in China
In 2016, Chinese authorities launched a campaign to reduce risks in China's shadow finance system. The campaign managed to reduce the size of China's shadow finance system, which has declined from over 60 per cent of GDP to around 40 per cent. This has been a positive development from a systemic risk perspective. Regulatory reform has improved the visibility authorities have over the financial system and improved their ability to target policies to address emerging risks. However, savers now have fewer investment options that offer attractive returns, while financial intermediaries have faced increased pressures on both the assets and liabilities sides of their balance sheets. In addition, the supply of credit has been curtailed in sectors that rely on shadow finance. The COVID-19 pandemic has further highlighted the difficult trade-off policymakers face between containing longer-term financial system risks while supporting economic growth in the near term.
Unconventional Monetary Policy
This Explainer describes the different tools used by central banks, including the Reserve Bank of Australia, when conducting unconventional monetary policy.
Some graphs in this publication were generated using Mathematica.
ISSN 1837-7211