Australian banks to fund government stimulus bill – AFR

Adding push to the fight against the coronavirus (COVID-19)-led economic slowdown, the Aussie policymakers have decided to direct banks towards buying the government debt, as per the Australian Financial Review (AFR) news on early Tuesday morning in Asia.

Key quotes

Banks will be directed by financial regulators to buy up to $240 billion of additional federal and state government debt to normalize emergency bank liquidity, in a regulatory move that will lower government borrowing costs and encourage stimulus spending on infrastructure and other programs.

The primary objective of the yet-to-be-announced shift by the Australian Prudential Regulation Authority (APRA) and Reserve Bank of Australia will be to enhance bank stability in line with international rules so banks continue to withstand periods of financial stress.

The adjustment would help governments, particularly states, fulfil RBA governor Philip Lowe's pleas to seize on ultra-low interest rates to fund job-creating programs such as infrastructure projects.

Bankers have been in discussions with APRA about the looming change that is expected to be unveiled after the October federal budget, when the Commonwealth's debt projection is updated to about $1 trillion, The Australian Financial Review has learnt.

Market implications

Despite being positive to the Australian currency, AUD/USD pays a little heed to the AFR piece while taking rounds to 0.7275/80 by the press time.