The utility of the Term Funding Facility will come into focus over the two months this window remains opens, Christopher Kent, the RBA’s assistant governor for financial markets argued yesterday.

Take-up of the TFF is currently around A$26 billion, or around 17 per cent of the total currently on offer, Kent told a KangaNews webinar.

“There are a few reasons why banks have not taken up more of this funding at this stage in the program. One is simply that many banks have accessed even cheaper funding from other sources in recent months, albeit at shorter tenors than three years. In particular, banks have been able to issue bank bills at rates below 25 basis points.

“Similarly, bank deposits have grown, and an increasing share of deposits have been paying rates below 25 basis points.”

While delaying any drawdown for good reason, Kent said “the calculus underpinning the decision of some banks to delay drawing on their initial TFF allocations will change closer to the deadline of 30 September.

“At that time, it will make sense for banks to compare the certain 25 basis point cost of the TFF with the uncertain cost of other sources of funding over the next three years, including bonds that would mature over that period.”

Meanwhile, the cash rate is a slippery rate, Kent explained.

“Given the high level of exchange settlement balances supplied by the Reserve Bank, it was not surprising that the cash rate fell below 25 basis points. Since the latter part of April, it has generally been either 13 or 14 basis points.

“Daily volumes of cash transactions between banks have declined, since many banks don't need to borrow overnight from one another given the relatively large balances they each have in their ES accounts. Indeed, on some days there have been insufficient volumes to calculate the cash rate based on market transactions.

“On these days we have instead used expert judgement as set out in our fall-back procedures to determine the published cash rate.

“Typically, we have used the last published rate based on sufficient market transactions.

“On one occasion we published another rate that we judged to have better reflected recent market conditions.”