Daily Commentary BY THE CURVE TEAM –

Reserve Bank Adjusts the Committed Liquidity Facility

7th June 2019

The RBA has today announced an adjustment to the Committed Liquidity Facility enabling ADIs to increase their holdings of high quality liquid assets (HQLA) from 25 to 30 per cent of the stock of HQLA securities. They have also increased the HQLA fee from 15 to 20 bpts in two incremental adjustments to 17 bpts on 1/1/2020 and to 20 bpts a year later.

The refinancing revolution has taken another step forward with encouragement by the Treasurer Josh Frydenberg to actively look around for a better deal. Comparison websites are already indicating there is a 300% increase in enquiries and this could really create a surge in demand for funds over the next 3 months leading into our own Spring/Summer period.

New issuance in term debt offerings by the major banks and smaller ADIs has been muted over recent months and this may change rapidly. It takes time to launch a term deal and pressures will surface in ADI’s term deposit curve and NCD margins as a first step. Yesterday, surprisingly the basis margin for major banks or corporates to finance in foreign currencies and swap the proceeds back into AUD funding moved an aggressive 2-4 bpts higher.

The positive trade surplus yesterday of $4871m for the month of April is another strong result and clearly shows the Government is turning out strong revenue numbers and is now firmly entrenched in surplus. Their desire to pass on immediate tax cuts to low and middle income earners is a priority above all other economic decisions at the moment.

Peter Sheahan

Director - Institutional Markets