Reserve Bank of Australia policy measures working as expected: official

[SYDNEY] Monetary stimulus launched by Australia's central bank to support the virus-stricken economy has worked to lower interest rates and improve supply of credit in the economy, a senior official said on Thursday.

The Reserve Bank of Australia (RBA) had slashed interest rates to a record low 0.25 per cent in an emergency meeting in mid-March and launched an "unlimited" government bond buying programme together with a cheap funding facility for banks.

In a speech titled "New Financial Statistics: The Value of Sound Data in Troubled Times", RBA head of domestic markets Marion Kohler said a new data collection project has helped boost its understanding of how the financial sector was responding to the pandemic.

Dr Kohler said the project, which involves the prudential regulator, the statistics bureau and the finance industry, has helped provide an early read on the economy and the effectiveness of the RBA's policy measures since March.

"The data show that the Bank's policies have helped to lower interest rates for borrowers to historic lows and support the provision of credit," Dr Kohler said.

In a sign monetary policy was working, Dr Kohler noted that housing loan applications have increased in recent months.

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However, lending to small and medium business has been little changed since the onset of the pandemic, likely due to softer demand for new loans, led by the heightened uncertainty in the current environment.

"Some businesses may be reluctant to take on new debt, as this uncertainty affects their expectation of future revenue and so their ability to repay debt," Dr Kohler added.

"But banks are also more cautious about lending to businesses. In particular, to new businesses and to businesses in those sectors most affected by the pandemic."

REUTERS