This week the RBA and major banks have begun to put in place measures to support the Australian economy as infection rates continue to rise…
While infection rates continue to skyrocket all over the world, we have seen some major policy initiatives announced in the last few days from the RBA and the major banks that could help soften the blow that the economy will face. I remain of the view that the best policy response will be whatever allows the economy to return to normal (or close to normal) the soonest – if that means a total shut down for a month, then sobeit – so ultimately these measures are not as important as the government’s attempts to slow the virus, but if we do see infection rates respond to the government’s measures then these initiatives will make a huge amount of difference. We’re still to see the latest fiscal response which will hopefully plug the gaps the RBA wasn’t able to fill, but that should come imminently.
The biggest measure announced yesterday was that the RBA would provide the banks with $90bn worth of very cheap (0.25%) funding for a period of three years, which banks will then be able to lend to small and medium enterprises struggling through a cash crunch while consumer-facing businesses are effectively forced to shut. This will allow small businesses to retain staff and allow them to survive through what will ultimately be a temporary closure. The RBA is hoping that by doing this, they can keep things ticking over long enough to ensure that when business conditions return to normal and reopen, it will be into a strong enough economy.
The banks have responded positively and are clearly recognising the challenges their customers are facing. Today, the Australian Banking Association said that all banks would defer loan repayments to small businesses for six months. There are also calls for banks to move all principal and interest loans to interest only for a period, and I think this is a logical move for the banks to make.
Anecdotally, I have spoken to a large number of people – friends, business contacts, Rivkin members – employed by small businesses that have seen their revenue disappear in a week. All of these businesses have a place in the economy when things start to return to normal, and I just hope the measures taken by every arm of the government – related to the health and financial wellbeing of the population – will be sufficient to get small businesses and their employees through the financial hardship ahead.
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