TFF to wind down in June

John Kavanagh

The Term Funding Facility will not be extended beyond June, Reserve Bank governor Philip Lowe has confirmed.

In a monetary policy update in a speech at the National Press Club yesterday, Lowe also said the three-year bond rate target would be maintained and that the RBA does not expect to increase the cash rate before 2024.

The TFF was set up as a COVID relief measure in March last year, giving authorised deposit-taking institutions access to A$90 billion of funding at a fixed interest rate of 25 basis points for three years.

The scheme was to have run until September but was given an additional funding allowance of $57 billion from October until the end of June this year.

In November, the TFF rate was cut to 10 bps, in line with a reduction in the cash rate target.

Speaking at the National Press Club yesterday, Lowe said ADIs will be able to draw on the facility until the end of June.

Lowe said: “The board would consider extending this facility if there were a marked deterioration in funding and credit conditions in the Australian financial system. At the moment there are no signs of this.”

Lowe said the three-year bond rate target (currently 10 bps) would be maintained. Later in the year the RBA board will consider whether to shift the focus of the yield target from the April 2024 bond to the November 2024 bond.

“This target has helped anchor the Australian yield curve and reinforced out forward guidance regarding the cash rate,” Lowe said.

On the cash rate, Lowe said: “The board has no appetite to go into negative territory and has done as much as it reasonably can with interest rates. Before increasing interest rates, the board wants to see inflation sustainably within the 2 to 3 per cent target range.

“Meeting this condition will require a much tighter labour market and stronger wages growth than we are currently forecasting. It is difficult to determine exactly when this condition might be met but we do not expect it to be before 2024, and it is possible that it will be later than this.”

Lowe said the RBA’s bond purchase program, which will be extended with a $100 billion program starting in April, has helped lower interest rates and has meant that the Australian dollar is lower than it otherwise would have been.

Lowe said one of the economy’s strengths last year was that consumer consumption held up, while the household savings rate increased.

On the downside, “we are yet to see the same signs of recovery in private investment that we have witnessed in household spending,” Lowe said.