Analysis: RBA Balance Sheet, Govt Cash Balance Hits New Record
- Published on
- 07 Sep 2020, 10:20 AM
By Sophia Rodrigues
The Reserve Bank of Australia’s balance sheet touched a new high last week and is just A$5 billion shy of hitting A$300 billion, with new reserves from lending and bond-buying providing a boost in the latest week.
The balance sheet has now grown about 64% or A$115 billion since the pandemic and is expected to expand further in the next few years.
As of September 2, the RBA’s balance sheet stood at A$295.9 billion, up A$13.4 billion from the week before. The expansion was largely due to A$10.8 billion of lending to banks under the Term Funding Facility and A$4.0 billion of bond-buying under the yield target policy.
TWIN-RECORD
It was a day of twin-record, with the government cash balance also touching a record high, thanks to settlement of the A$21 billion 1% November 2031 government bond.
The cash balance was around A$95 billion and was A$12 billion to A$16 billion higher than the previous high of A$87.6 billion on August 5.
In the RBA’s balance sheet, the new reserves were reflected as deposits which rose to A$101.8 billion, up A$22.1 billion from the week before.
The deposits are mostly made up of the cash balance by the Australian government held as term deposits and current account balance with the RBA. It also includes deposits of overseas institutions and a small amount of state government deposits.
In recent months, the Australian Office of Financial Management has been maintaining larger cash balances to meet the government’s higher spending requirement and in line with its judgement of what constitutes a reasonable liquidity buffer. The AOFM’s aim is to carry sufficient liquidity to cover forecast outlays for at least four weeks without access to financing, and that amount is likely a minimum of A$60 billion.
BALANCE SHEET GROWTH SINCE END-FEB
At the end of February, the RBA’s balance sheet stood at A$180 billion. The growth since then has been largely due to:
--Printing of new notes
--Lending under Term Funding Facility
--Bond-buying under yield target policy
--Bond-buying for liquidity and government cash management purposes
--Increase in government deposits
TFF SHARPLY UP AS 2031 SETTLES?
It is interesting banks accessed a record amount of TFF in the same week as the one which saw a record bond issue via syndication by the government. The take-up of TFF was A$10.8 billion which compares with the previous weekly high of A$7.4 billion in the week to July 15.
At the syndication, domestic investors bought 53.7% of the A$21 billion 2031 bond, so it is possible some of the TFF amount was used to invest in the bonds.
In any case, an acceleration in TFF drawdown shouldn’t be a surprise as banks have only until the end of September to take up the remaining A$31.5 billion of the initial TFF allowance.
--Contact: sophia@centralbankintel.com