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RBA’s new data collection method shows interest rates dropping

hand holding wooden blocks that spell 'low rates' representing low interest rates
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The Reserve Bank of Australia (RBA) has a new data collection method known as Economic and Financial Statistics (EFS) collection. Let’s take a closer look.

What is the new data available to the RBA?

The RBA is now collecting data from both bank and non-bank lenders about the interest rates charged to customers, and other data on business and household activity. This helps the RBA analyse how its policy tools are affecting the economy while gauging interest rates charged by lenders in the economy. 

What did the RBA determine using the data?

As expected, the RBA saw a sharp economic contraction as a result of the coronavirus pandemic. This led to higher unemployment and the sharpest quarterly economic contraction on record, with GDP falling 7% in the June quarter. Using the new EFS data, the RBA was able to assess how policies implemented in March affected the economy. 

RBA domestic markets head Marion Kohler said interest rates had fallen as the RBA dropped the cash rate and lenders competed for new loans. Banks dropped variable interest rates on housing loans by about 30 basis points in response to the RBA cutting its cash rate target by 50 basis points in March. Interest rates on new fixed rate housing loans have fallen by around 65 basis points since February this year.

The RBA’s EFS data revealed that interest rates on loans outstanding to small, medium sized and large sized businesses have fallen since March.

Regarding business loans, Kohler said large businesses increased borrowing around March and have repaid about 3 quarters since. This was precautionary in case the economic situation worsened. Borrowing by small to medium sized businesses saw little change. Kohler said programs such as JobKeeper and the employer cash flow boosts have likely reduced the need for credit by businesses at this time.

Applications for housing loans increased since March, EFS data revealed. This came as borrowers moved to refinance existing loans. In addition, Kohler said new applications for housing loans improved in recent months in line with increasing housing market activity after March and April lows. The EFS data showed that households were paying more into their loans in recent months, including into offset accounts. This was in line with lower household spending and more precaution by households. Some borrowers also drew down superannuation to put more funds into their offset accounts and some borrowers placed their social assistance payments into offset accounts.

Personal lending also decreased sharply in 2020, according to EFS data. This was part of a structural decline that was accelerated by the pandemic, Kohler said. She added people had borrowed less in personal loans in the last decade as they moved toward lower interest alternatives such as mortgage redraw facilities. 

Kohler said the EFS data revealed that the RBA’s policies supported the lowering of interest rates for borrowers to historic lows and supported the provision of credit.

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