RBNZ’s Funding for Lending Programme Starts Dec 7
- Published on
- 01 Dec 2020, 10:53 AM
The Reserve Bank of New Zealand’s funding programme for banks that is aimed at lowering borrowing costs in the economy and supporting its inflation and maximum employment objectives, will start on December 7.
The facility – Funding for Lending Programme – provides cheap three-year funding to eligible institutions at a floating rate priced at the official cash rate. The RBNZ is hoping that a reduced funding costs for banks would result in a reduction in interest rates for borrowers which will boost lending in the economy.
The funding will be structured as repos and the RBNZ could extend the total two-year period when it can be accessed. The RBNZ will not shorten the transaction period.
Eligible securities for the repos are Tier 1 securities which include New Zealand government securities and acceptable Kauri issues, and Residential Mortgage Backed Securities.
The RBNZ will be monitoring the programme closely and will measure its success by how far it lowers borrowing rates for businesses and households rather than the level of drawdown. This means the RBNZ would be carefully watching bank’s lending rate announcements in the weeks ahead.
The initial allocation under this programme is equal to 4% of the banks’ eligible loans as of October 31. This can be accessed up to June 6, 2022 and is likely to be around NZ$19 billion.
Banks’ will also get additional allocation equal to 50 cents for every NZ$1 of net growth in eligible loans from the period commencing November 1, up to a maximum of 2% of loans as of October 31. The additional allocation can be drawn from December 7, 2020 to December 6, 2022.