At their meeting earlier this week, the RBA Board decided to maintain the targets for the cash rate and the yield on 3-Year Australian Government bonds of 25 basis points. It also decided to increase the size of the Term Funding Facility and make the facility available for longer. I want to delve a bit deeper into this Term Funding Facility, explain the ins and outs and why this is a big call, a very positive one. But more on that later.

Globally, an uneven economic recovery is under way after a severe contraction in the first half of 2020. In Australia, the economy is going through a very difficult period and is experiencing the biggest contraction since the 1930s and as difficult as that is, the downturn is not as severe as expected and in most of Australia, a recovery is already underway. However, the road towards recovery will be a very bumpy one, as can be witnessed in Victoria at the moment.

Employment increased in June and July which is a good sign, however, the Victorian economy dampens those numbers and we expect to see a more meaningful recovery in the labour market towards the end of the year.

Wage and price pressures remain subdued and this is likely to continue for some time, with inflation expected to average between 1% and 1.5% over the next couple of years.

Phillip Lowe mentioned that the Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3% target band, so the cash rate is not going anywhere for the next years to come.

Now, back to the Term Funding Facility. Under the expanded Term Funding Facility, Authorised Deposit-taking Institutions, or ADIs, will have access to additional funding at a fixed rate of 25 basis points for three years. They now will be able to draw on this extra funding up until the end of June 2021. This extension will ensure that all ADIs continue to have access to the Facility after the end of September, when the window for drawings under the initial allowance closes.

Now, to give you an idea of the size of this extension and increase of allowance: to date, ADIs have drawn $52 billion under the Term Funding Facility and there will now be a total amount available of around $200 billion.

Main benefit: this will help keep interest rates low for borrowers and supports the provision of credit by providing ADIs with greater confidence about continued access to low-cost funding.

As a result, there is a very high level of liquidity in the Australian Financial System and borrowing rates are at historical lows. So when your credit application is a tight one and it gets approved, you know who to thank for it.