RBA: Pandemic cheap lending policy to business failed

In a research paper published on Tuesday, the Reserve Bank of Australia (RBA) said that its Term Funding Facility (TFF) failed to boost borrowing by businesses.

The central bank had introduced a cheap lending facility as a part of its Covid policy response.

Additional takeaways

“It achieved a key objective of providing banks with three-year low-cost funding and was available for drawdown until 30 June 2021.”

“We find no statistically significant evidence that the TFF increased credit supply to businesses.”

“However, our confidence intervals are wide and there are significant identification challenges involved in disentangling the effects of the TFF from the effects of pandemic-related disruptions and other policy interventions on credit supply and demand.“

“Nonetheless, the TFF provided an assured source of funding at a time of considerable stress in the financial system and lowered banks’ funding costs, and any effects on business lending via these channels may not be fully reflected in our results.”

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