Welcome to LGFA’s latest newsletter ‘In The Loop’.
Coronavirus (COV-19), Financial Markets and contingent loan facilities
Global financial markets have been extremely volatile over recent months highlighted by large declines in equity markets and bond yields around the globe. Apart from the major impact to people’s health and well-being, the Coronavirus has shown the world that we are now more interconnected than ever.
In early March, the RBA cut the official cash rate by 0.25% to 0.5% in response to the economic downturn being felt in Australia and around the world. The RBA met again in mid March and cut the official cash rate by another 0.25% to an all time low of 0.25% and started to purchase bonds in the market in an effort to increase liquidity in the financial system – this activity is referred to as quantitative easing.
While these emergency measures are likely to stimulate the overall economy by reducing the home loan repayments of many Australians, there is no doubt that some sectors of the economy, in particular retirees and institutions holding cash balances, will now be earning even less on their deposits and in fact significantly less than inflation.