The Bulletin publication schedule is changing

From 2024, the Bulletin will be published in the months of January, April, July and October. To make this transition, the December 2023 issue will become the January 2024 issue, published on Thursday 25 January.

See the 2024 calendar for more dates.

September 2023

Australian Economy
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Recent Trends in Australian Productivity

Angelina Bruno, Jessica Dunphy and Fiona Georgiakakis

Productivity growth enables rising living standards and is needed for real wages growth to be consistent with stable inflation over the medium term. Prior to the COVID-19 pandemic, productivity growth in Australia and other advanced economies had been low, because business dynamism, job mobility, global trade and policy reform all slowed. Over the past few years, the pandemic and other shocks distorted productivity outcomes. Even if these shorter term fluctuations wash out, the longer term (and apparently structural) weakness in productivity growth could persist. This would have implications for the rate of nominal wages growth that is consistent with inflation returning to the target band. This article discusses the trends in Australia’s productivity growth before, during and since the pandemic and the implications for the economic outlook.

productivity, wages, labour market, COVID-19
Australian Economy
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Adoption of General-purpose Technologies (GPT) in Australia: The Role of Skills

Kim Nguyen and Jonathan Hambur

General-purpose technologies (GPT) have the potential to transform how we work, to change the skills we need and to drive productivity growth. It is therefore important to understand the conditions that lead to the successful adoption of GPT. Using a novel database on the adoption of cloud computing and artificial intelligence/machine learning by Australian-listed firms, this article finds that the COVID-19 pandemic led to a short-lived surge in adoption of cloud computing technologies. In addition, there is evidence that profitable adoption is more likely to occur in firms where the Board has members with relevant technological backgrounds, and that firms adopting GPT are more likely to seek staff with related skills. These findings highlight the importance of workers’ and managers’ skills in technology adoption, and the impact this can have on productivity growth.

business, labour market, machine learning, productivity, technology
Photo: Sarayut Thaneerat – Getty Images

Green and Sustainable Finance in Australia

Cameron Armour, Declan Hunt and Jeremy Lwin

Australia has committed to achieving net zero greenhouse gas emissions by 2050. This will require significant amounts of investment and financing as we move away from a carbon-intensive economy. Prior to the COVID-19 pandemic, productivity growth in Australia and other advanced economies had been low, because business dynamism, job mobility, global trade and policy reform all slowed. Over the past few years, the pandemic and other shocks distorted productivity outcomes. Even if these shorter term fluctuations wash out, the longer term (and apparently structural) weakness in productivity growth could persist. This would have implications for the rate of nominal wages growth that is consistent with inflation returning to the target band. This article discusses the trends in Australia’s productivity growth before, during and since the pandemic and the implications for the economic outlook.

bonds, climate change, financial markets, securities
Australian Economy
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Economic Literacy in Australia: A First Look

Madeleine McCowage

Those who are economically literate make more informed economic choices, better understand the world around them and can influence public discourse and the actions of government. Given the importance of economic literacy for individuals and society at large, the Bank commissioned a large-scale survey of Australian adults testing their understanding of some core macroeconomic topics. The results enabled compilation of simple literacy scores that represent the Bank's first attempt to gauge economic literacy in Australia. Being male, older, of higher income, having a degree, and having studied or being engaged with economics are associated with higher scores. By contrast, persons aged 18–24 years, unemployed persons and those without a degree had the lowest scores. Questions that tested abstract macroeconomic concepts appeared more difficult than those about more relatable issues that draw on lived experience. These findings speak to the importance of simple and targeted communication by the Bank and other policymakers to support the understanding of economic concepts across the community.

education, rba survey
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Recent Developments in Small Business Finance and Economic Conditions

Patrick Chan, Andre Chinnery and Peter Wallis

The economic environment has become more challenging over the past year, including for small businesses. High inflation, slower growth of demand and difficulties in finding suitable labour have contributed to declines in small business conditions and confidence. Demand for business finance has slowed, consistent with the rise in interest rates and slower growth in economic activity. Small businesses report that accessing funding through banks remains a challenge. The article considers these recent developments, drawing on the discussions of the Small Business Finance Advisory Panel and information from the Bank’s liaison program.

business, credit, finance, wages
Financial Stability
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Financial Stability Risks from Commercial Real Estate

Jin Lim, Matthew McCormick, Siddarth Roche and Emma Smith

Current conditions in global commercial real estate (CRE) markets are challenging. Weak leasing demand and higher interest rates are weighing on CRE owners’ loan servicing ability and asset values. Globally, appetite to lend to CRE investors is softening and signs of financial stress are emerging especially among office owners in the United States. While CRE markets are less likely to pose risks to the banking system given improved lending standards following the global financial crisis (GFC), systemic risks are higher in jurisdictions where the banking system is more exposed to CRE, such as in the United States and Sweden. Australian CRE markets face similar challenging fundamentals, though signs of financial stress appear low at present and systemic risks are lower than in the past. This is a result of Australian banks’ reduced CRE exposures as a share of their total assets and tighter lending standards since the GFC. However, risks would increase in the event of a sharp economic downturn or if systemic risks were to spill over from overseas CRE markets.

asset quality, banking, commercial property, COVID-19,financial stability
Australian Economy
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New Timely Indicators of Wages Growth

Nalini Agarwal, James Bishop, Matthew Fink, Jessica Geraghty and Yahdullah Haidari

Monitoring developments in wages is important for assessing the inflation outlook, as labour costs are a major factor in firms’ pricing decisions. Over recent years, the Reserve Bank has developed a suite of timely wages indicators based on surveys and administrative data. Together with externally developed indicators, these measures provide a fuller view on wages developments ahead of the release of official statistics. This article explains the methodology behind these indicators and what they reveal about labour costs in Australia.

labour market, wages
Financial Stability
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Financial Health and Employment in the Business Sector: A Non-linear Relationship

Phil Grozinger

This article examines how increased financial stress in the business sector negatively impacts employment through the behaviour of firms. It highlights the non-linearity of the relationship between firms' financial health and employment and identifies thresholds that can serve as useful reference points when assessing the resilience of the business sector and risks to macrofinancial stability. Using data at the individual business level, this article finds that employment outcomes are significantly worse for firms with a profit margin below 5 percent or with a cash surplus (i.e. cash assets plus cash profit) of less than 10 per cent relative to sales.

business, financial stability, labour market, modelling
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Reading through the Lines: Price-setting Indicators from Earnings Calls

Tomas Cokis, Callan Windsor and Max Zang

This article explores how information in earnings call transcripts from Australian firms can contribute to the Reserve Bank's understanding of their price-setting behaviour, as a complement to information gathered from the Bank's liaison program. A large language model is used to process and analyse earnings call transcripts and construct new sentiment indicators for input costs, demand, prices and supply shortages from them. These indicators, starting in 2007 and updated to capture the latest August earnings season, provide useful information about economic conditions and price-setting behaviour, including about developments during the recent period of unusually high inflation.

machine learning, modelling, technology, business, finance
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Measuring Government Bond Turnover in Australia Using Austraclear Data

Cameron Armour, Leon Berkelmans and Laurence Bristow

This article provides new estimates using Austraclear data for monthly turnover ratios for Australian Government Securities (AGS) and semi-government bonds (semis). Previous Reserve Bank estimates used Austraclear data that included repo transactions, as acknowledged at the time. In November 2021 Austraclear implemented a change to reporting standards that excluded repo transactions more effectively. This change allows for more accurate estimates of turnover for AGS and semis. The new turnover estimates are considerably lower, suggesting repo activity was a significant part of the previous estimates. The new estimates, with repo transactions excluded, better align with survey data on turnover published by the Australian Office of Financial Management.

bonds, financial markets, securities

June 2023

Financial Stability
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Climate Change and Financial Risk

Samuel Kurian, Geordie Reid and Maxwell Sutton

Climate change, and the actions taken in response to it, introduces both risks and opportunities for financial institutions. The Reserve Bank continues to monitor the build-up of climate-related financial stability risks, including how these risks are priced and who ultimately bears the physical and transition risks arising from climate change. Globally and in Australia, most analysis has found limited direct effects of climate risks on the financial system as a whole. Those that do arise fall unevenly, with the largest risks concentrated in specific geographic regions and sectors. Much of the analysis to date has been exploratory in nature and analytical frameworks continue to develop. This reflects, in part, the complexity of bringing together elements of climate science, economics, finance and regulation. Commonly identified areas for improvement relate to data availability and coverage, consistent disclosure requirements, and the design of scenarios used to assess climate-related risks to financial stability. Ongoing engagement and coordination between the public and private sectors, domestically and internationally, will be required to effectively monitor and ultimately manage the physical and transition risks arising from climate change.

climate change, financial markets, modelling, risk and uncertainty
Australian Economy
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New Insights into the Rental Market

Fred Hanmer and Michelle Marquardt

This article draws out new insights into the private Australian rental market using a new large administrative dataset of rental properties, which is an input to the Consumer Price Index (CPI). CPI rent inflation has picked up recently. Since 2021, rents have increased across inner-city and regional areas throughout all the states. Rent increases have also become more common and larger on average – particularly for the 2–3 per cent of properties each month that have a change in tenants. This is in contrast with the experience during the COVID-19 pandemic where rents fell in many suburbs close to central business districts but increased in regional areas, driven by a preference shift among many households for more space and net population flows.

COVID-19, households, housing, inflation
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Consumer Payment Behaviour in Australia

Thuong Nguyen and Benjamin Watson

The results of the Reserve Bank’s 2022 Consumer Payments Survey show that consumers continue to shift from using cash to electronic payment methods – a trend that was accelerated by the COVID-19 pandemic and consumers’ preference towards using debit and credit cards and making payments online. Consumers are also increasingly using more convenient payment methods, particularly contactless card payments, by tapping their card or phone. Cards are now used for most in-person payments, even for small transactions that used to be made mostly with cash.

money, payments, rba survey
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Cash Use and Attitudes in Australia

Jack Mulqueeney and Tanya Livermore

The 2022 Consumer Payments Survey reveals that the ongoing decline in cash use in Australia has accelerated since the COVID-19 pandemic. The share of in-person transactions made with cash halved, from 32 per cent to 16 per cent, over the three years to 2022. The decline in cash use was particularly pronounced for smaller payments; cash is now used less than electronic methods for all transaction sizes. The demographic groups that traditionally used cash more frequently for payments – such as the elderly, those on lower incomes and those in regional areas – saw the largest declines in cash use. Privacy and security concerns with electronic payment methods continued to be the main reason for needing cash, while barriers to using electronic payment methods have become less important since 2019.

banknotes, money, payments, rba survey
Australian Economy
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Estimating the Relative Contributions of Supply and Demand Drivers to Inflation in Australia

Ben Beckers, Jonathan Hambur and Tom Williams

Inflation has increased substantially since mid-2021. Understanding the relative contributions of supply and demand factors is important for determining the appropriate monetary policy response; a central bank may at least partly ‘look through’ the price effects of a supply shock if it is expected to be short lived and inflation expectations remain anchored. This article attempts to disentangle and explore the contributions of supply and demand factors to the recent inflationary episode, using three approaches. Similar to the experience of other advanced economies, our estimates suggest that supply-side factors have been the biggest driver of recent inflation outcomes in Australia. These supply-side factors have been persistent, with their contribution to inflation growing over 2022, leading to an extended period of inflation being above target and concerns that inflation expectations could become de-anchored. That said, demand has also played an important role.

inflation, modelling
Financial Stability
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Leverage, Liquidity and Non-bank Financial Institutions: Key Lessons from Recent Market Events

Rhea Choudhary, Suchita Mathur and Peter Wallis

Non-bank financial institutions (NBFIs) can pose risks to financial stability due to their size, complexity and global interconnectedness. Vulnerabilities present in some NBFIs include high levels of leverage, liquidity mismatches and weaknesses in risk management practices. This article discusses how these vulnerabilities have been exposed in multiple episodes overseas since early 2020, resulting in dysfunction in some financial markets and losses for some NBFI counterparties. While Australian markets and institutions were largely unaffected by these episodes, regulators in Australia and overseas remain vigilant to the potential future risks posed by the sector.

central clearing, financial markets, international, liquidity, regulation
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Syndicated Lending

Qiang Liu

Syndicated lending involves a group of lenders providing a single loan to one borrower. This article considers the purposes and workings of syndicated loans in the Australian market, and the advantages of this type of lending for both lenders and borrowers. It finds that syndicated loans are a significant source of funding for large Australian businesses and for borrowers with large financing needs, especially as such loans are often more accessible and flexible than public debt markets. For lenders, syndication allows them to diversify their exposures, as well as to monitor loans and negotiate covenants efficiently.

debt, banking, finance, funding
Australian Economy
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Recent Developments in the Cash Market

Laurence Bristow and Calebe de Roure

Following the implementation of unconventional monetary policy measures during the COVID-19 pandemic, liquidity in the banking system rose significantly. This led to a fall in cash market activity and a decline in the cash rate to below the cash rate target. Despite the high level of liquidity – as measured by Exchange Settlement (ES) balances – some banks have continued to borrow in the cash market. Over the past year or so, this borrowing has picked up somewhat and the cash rate has risen modestly to be slightly closer to the target, largely owing to an increase in the concentration of ES balances. As the Reserve Bank’s unconventional policy measures unwind and ES balances decline, activity in the cash market is likely to increase further. The extent of any future pick-up in activity, and the level of the cash rate relative to the target, will be influenced by the distribution of ES balances across banks.

cash rate, COVID-19, financial markets, liquidity
Global Economy
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Economic Developments in the South Pacific

Kelsey Wilkins

Australia has long played a significant role in the regional economy of the South Pacific. This article provides an overview of economic developments in the region, with a focus on recent shocks and medium-term growth challenges. The region’s heavy reliance on external demand meant that South Pacific economies were severely impacted by the COVID-19 pandemic and other concurrent challenges. Expansionary economic policies implemented by governments and central banks, alongside international aid and lending, supported the region through the acute phase of the pandemic. While a recovery is underway, the South Pacific will continue to face challenges to its medium-term growth and development, particularly via high debt levels and climate change.

climate change, COVID-19, international, risk and uncertainty
Global Economy
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Correspondent Banking in the South Pacific

Michael Davies

Worldwide, many financial institutions make use of correspondent banking services to connect to the global financial system. This article examines the withdrawal of global financial institutions from the provision of correspondent banking services to the South Pacific and the implications for countries in the region. The available evidence suggests that South Pacific nations, like many small island economies globally, have seen a larger-than-average decline in the provision of these services. The decrease in the availability of correspondent banking services appears to be most pronounced for smaller local banks and in the major global currencies. While the available evidence suggests that South Pacific countries have been able to manage this decline thus far, the remaining correspondent banking services are becoming increasingly stretched and further withdrawal may cause financial sector disruption.

banking, international, payments

March 2023

Australian Economy
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Renters, Rent Inflation and Renter Stress

Nalini Agarwal, Robert Gao and Megan Garner

Around one-third of all Australian households rent. Renter households tend to be younger, have lower incomes and less wealth than owner-occupiers. Renter households are also more likely than mortgagors to experience financial stress, although the incidence of financial stress among renter households has declined over the past decade. The rental market is tight and rents have increased more strongly of late, compared with the modest increases in average rents over the 2010s. For some renters, strong growth in incomes will have helped limit the deterioration in housing affordability, although there will be others who will struggle to afford the rent increases. This suggests that affordability will have worsened for some renters, and, in combination with other rising cost-of-living pressures, this is likely to be contributing to financial stress.

households, housing, inflation, risk and uncertainty
Financial Stability
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Fixed-rate Housing Loans: Monetary Policy Transmission and Financial Stability Risks

Gian-Piero Lovicu, Jin Lim, Anthea Faferko, Amelia Gao, Anirudh Suthakar and Declan Twohig

Fixed-rate borrowing increased significantly during the COVID-19 pandemic, which has delayed the effect of the higher cash rate on borrowers’ cash flows. A key issue for the economic outlook, and by implication financial stability, relates to the ability of borrowers with fixed-rate loans to adjust to substantially higher borrowing costs when their fixed-rate mortgages expire. Borrowers with fixed-rate loans have had a considerable period to adjust their finances to prepare for the increase in their mortgage payments and many appear to have similar savings to borrowers on variable rates. However, on some metrics fixed-rate loans have higher risk characteristics than variable-rate loans. With many fixed-rate mortgages expiring in the period ahead, the Reserve Bank will continue to closely monitor the implications for household consumption and financial stability.

COVID-19, financial stability, housing, interest rates, monetary policy
Australian Economy
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A New Measure of Average Household Size

Nalini Agarwal, James Bishop and Iris Day

This article introduces a new, timely measure of average household size (AHS) – a key determinant of underlying demand for housing – using the data from the ABS monthly Labour Force Survey. The average number of people living in each household has declined from around 2.9 in the mid-1980s to around 2.5 since the early 2000s. More recently, the AHS declined to historical lows of a little below 2.5 people per household. This was driven by changes in Sydney and Melbourne during the pandemic, which were more exposed to health restrictions, lockdowns and changes in migration flows from overseas.

COVID-19, households, housing
Financial Stability
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Non-bank Lending in Australia and the Implications for Financial Stability

Callum Hudson, Samuel Kurian and Michelle Lewis

Non-bank lenders help to finance some forms of economic activity that might otherwise go unfinanced by traditional banks. However, as the global financial crisis demonstrated, non-bank lending activities have the potential to undermine financial stability, in part because they are less constrained by regulation. Risks to financial stability can include the amplification of credit and asset price cycles, increased competition for borrowers that prompts banks to weaken their own lending standards, and the potential of stress spilling over into the prudentially regulated financial system. Unlike in some other economies, non-bank lending accounts for a small share of total credit in the Australian economy and banks have relatively limited exposure to non-bank lenders. Non-bank lending therefore poses little systemic risk to financial stability in Australia at present. However, it has grown strongly in recent years, particularly for housing. Regulators and policymakers therefore need to continue monitoring developments in this space. This article provides a primer on non-bank lending in Australia, focusing on lending for housing and the potential risks to financial stability.

credit, financial stability, housing, lending standards, regulation
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The Cash-use Cycle in Australia

Rochelle Guttmann, Tanya Livermore and Zhan Zhang

The use of cash for day-to-day transactions has been declining for many years and this has implications for all aspects of the cash system. This article illustrates the interrelationships between consumers’ use of cash for transactions, access to cash services and merchants’ acceptance of cash as a payment mechanism through a ‘cash-use cycle’. Recent data suggest that the cash-use cycle in Australia is functioning adequately at present. However, the ongoing adequacy of cash access is vulnerable to further withdrawal of access points; this issue warrants regular monitoring.

banknotes, currency, money, payments
Australian Economy
Photo: Ivan Bajic – Getty Images

Can Wage-setting Mechanisms Affect Labour Market Reallocation and Productivity?

Jonathan Hambur

Productivity growth has slowed in Australia and overseas in recent decades, with negative implications for wages and incomes. In Australia, at least part of this slowdown reflects the fact that more productive firms have grown and attracted workers more slowly than in the past. This article considers whether the increased use of industry-wide wage agreements could help to explain this slowdown. It finds that in sectors with greater use of industry-wide agreements, the relationship between firm-level wages and productivity tends to be weaker. This weaker relationship between productivity and wages seems to feed through to firm growth, with more productive firms seemingly less likely to attract staff and grow. While many factors can affect the choice of wage-setting mechanism, these results suggest that aggregate productivity growth and living standards could be stronger when firms are incentivised and able to compete for workers.

business, labour market, productivity, wages
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Bank Fees in Australia

Laura Nunn

This article updates previous Reserve Bank research on bank fees charged to Australian households, businesses and government. Over the year to June 2022, total fees charged by banks through their domestic operations were little changed from the previous reporting period. Strong growth in business credit added to fee income in the year, while overall fee income from households declined amid heightened lending competition in the housing market. Lending growth continued to outpace growth in fee earnings, and total fee income as a share of banks’ incomes decreased slightly.

banking, business, credit, fees, households
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Developments in Banks' Funding Costs and Lending Rates

Vincent Carse, Anthea Faferko and Rachael Fitzpatrick

Banks’ funding costs rose over 2022, driven by increases in the cash rate and in expectations for the future path of the cash rate. In turn, lending rates have increased considerably for the first time in over a decade. The increases in the average rate charged on all outstanding loans was limited by the large share of fixed-rate housing loans and ongoing competition in housing lending. This article updates previous research published by the Reserve Bank on developments in banks’ funding costs and lending rates.

banking, cash rate, credit, funding, interest rates, monetary policy
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Developments in Foreign Exchange and Over-the-counter Derivatives Markets

Cameron Armour and Jack Beardsley

This article discusses the key results from the 2022 Triennial Central Bank Survey of Foreign Exchange and Over-the-counter Derivatives Markets. Global activity in foreign exchange (FX) markets increased over the three years to April 2022, driven by increased turnover of FX swaps with short maturities and trading between dealers. The volume of FX trading activity in the Australian market also grew, although this was largely driven by increased trading between related parties. The Australian dollar was the sixth most traded currency globally, down from fifth in 2019. Turnover of over-the-counter (OTC) interest rate derivatives declined globally, reflecting the transition away from the London interbank offered rate (Libor); however, activity increased in the Australian OTC interest rate derivative market, reflecting an increase in turnover of interest rate swaps. For Australian banks, the value of OTC derivatives increased sharply, driven by interest rate and commodity derivatives.

currency, financial markets, global economy, international
Financial Stability
Photo: Busakorn Pongparnit – Getty Images

Foreign Currency Exposure and Hedging in Australia

Tim Atkin and Jacob Harris

The 2022 Survey of Foreign Currency Exposure confirms that Australian entities’ financial positions, in aggregate, are well protected against a depreciation of the Australian dollar. The composition of Australia’s foreign currency denominated assets and liabilities means that, overall, Australian entities have a net foreign currency asset position. This has increased over a number of years, largely reflecting an increase in the value of foreign currency equity assets associated with superannuation funds. Meanwhile, the banking sector accounts for a large share of Australia’s foreign currency liabilities because of their offshore funding activities. However, the bulk of the banking sector’s foreign currency debt liabilities have been hedged. After hedging, the sector has a net foreign currency asset position and no significant currency mismatches, both of which reduce the risks associated with a large depreciation of the Australian dollar.

exchange rate, financial markets, international, funding, debt, investment
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Reassessing the Costs and Benefits of Centrally Clearing the Australian Bond Market

Jon Cheshire and Joanne Embry

This article considers the costs and benefits of centrally clearing the Australian bond market, in light of developments in the market since the Reserve Bank’s last review in 2015. On balance, our analysis suggests that changes to the size and structure of the Australian bond market have strengthened the case for central clearing. These changes include substantial growth in the size of the market, increased participation of non-resident investors and increased complexity resulting from the growing number of bilateral clearing arrangements. Central clearing would simplify the market structure and could yield other benefits, especially in times of stress. For example, our estimates suggest multilateral netting has the potential to lower settlement obligations by $60 billion per day. This is more than can be achieved with bilateral netting. Further, market resilience and liquidity conditions might also be improved by multilateral netting as interbank participants’ balance sheet constraints are reduced. The key challenge for a potential central counterparty would be to develop a sufficiently wide network of products and participants to achieve overall benefits. Some participants face a lower incentive to join and in their absence the potential benefits from central clearing would be reduced.

bonds, central clearing, financial markets

December 2022

Australian Economy Dr HC Coombs speaking into a microphone at the Unitited Nation's Meeting for Asia and the Far East, seated at a table with a sign for Australia.
Photo: RBA Archives PN-002868

HC Coombs: Governor of Australia's Central Bank 1949–1968

Selwyn Cornish

Dr HC Coombs was Governor of Australia’s central bank for nearly 20 years. His appointment followed significant roles in Australia’s war-time administration and post-war reconstruction, where he was an architect of Australia’s international full employment policy, known as the ‘Positive Approach’. When appointed Governor of the central bank in 1949, Coombs remained committed to the pursuit of full employment. Influenced by Keynes, he sought to maintain aggregate demand and supply in ‘reasonable balance’, something the Reserve Bank continues to do today. After retiring from the Bank in 1968, Coombs continued to promote the arts in Australia and the rights and welfare of First Nations Australians. He became a senior adviser to the Whitlam Government and chaired the Royal Commission on Australian Government Administration – a fitting conclusion for someone often described as the nation’s greatest public servant. This article considers the life and career of HC Coombs, and complements the series of records that have been released on Unreserved.

banking, history, monetary policy
Australian Economy
Photo: artpartner-images – Getty Images

Economic Literacy: What Is It and Why Is It Important?

Madeleine McCowage and Jacqui Dwyer

One of the core objectives of the Reserve Bank’s public education program is to improve economic literacy. While the social benefits of economic literacy are well established, defining what is meant by this term is not straightforward and has been the subject of debate over many decades. This article explores the meaning of ‘economic literacy’. To arrive at a working definition, it discusses the economic principles that should be understood for someone to be considered economically literate, along with the topics they should be familiar with and the ways of thinking that we would expect them to display. In doing so, it distinguishes between economic and financial literacy. The article concludes by posing questions for future research on how economic literacy in Australia might be measured and how it might be supported.

Australian Economy
Photo: Chris Williams Black Box – Getty Images

The Recovery in the Australian Tourism Industry

Angelina Bruno, Kathryn Davis and Andrew Staib

The Australian tourism industry is gradually recovering from the COVID-19 pandemic that brought global travel to an unprecedented standstill. International tourism fell sharply in early 2020 and has only slowly recovered since restrictions were lifted in the first half of this year. By contrast, domestic tourism spending bounced back quickly as local restrictions eased and is now above pre-pandemic levels. This article outlines the recovery in the Australian tourism industry following the pandemic, the challenges the industry has faced in reopening, and the uncertainties around the outlook for the tourism industry over the next few years.

COVID-19, international, labour market, services sector
Financial Stability
Photo: Laurence Dutton – Getty Images

New Measures of Financial Stress from Non-traditional Data

Finn Lattimore and Max Zang

Household and business financial stress has significant implications for financial stability and monetary policy. However, high-frequency and timely indicators of emerging signs of financial stress are not readily available. To address this information gap, the Reserve Bank has developed novel measures of financial stress based on news, search and social media data. This article describes these new metrics and how they can capture meaningful changes in financial conditions and, in some cases, predict traditional measures of financial stress, such as loan arrears. Going forward, these indices will continue to be monitored for early signs of financial difficulties.

financial stability, households, risk and uncertainty, technology
Photo: piranka – Getty Images

Stablecoins: Market Developments, Risks and Regulation

Cameron Dark, Eleanor Rogerson, Nick Rowbotham and Peter Wallis

Stablecoins – a type of crypto-asset designed to maintain a stable value – have grown in popularity over recent years. Market developments, however, have highlighted the risks stablecoins can pose to investors, particularly if they are not fully backed by high-quality liquid assets. Stablecoins currently pose limited risks to the broader Australian financial system, but this could change if they become more widely used in the future – for example, in payments and other financial services. As such, regulators across the world are seeking to bring greater clarity to the regulatory treatment of stablecoins, not only to manage risks but also to support innovation in the market. This article considers the rise of stablecoins, the risks they pose and the response of regulators so far.

cryptocurrency, financial stability, payments, regulation, risk and uncertainty
Photo: jayk7 – Getty Images

The RBA and AOFM Securities Lending Facilities

Ahmet Aziz and Ben Jackman

Australian Government Securities (AGS) play an important role in the transmission of monetary policy given that yields on these securities provide a benchmark for other interest rates across the economy. The Bank has a large amount of AGS and ‘semi-government’ bonds issued by state and territory borrowing authorities (semis) on its balance sheet as a result of purchases to support the economy through the COVID-19 pandemic. To support the efficient functioning of these markets, the Bank operates a securities lending facility (SLF) from which eligible counterparties can borrow AGS and semis; the Bank also operates an SLF on behalf of the Australia Office of Financial Management (AOFM). The use of these SLFs picked up noticeably following the end of the Bank’s yield target and bond purchase program. This article discusses these facilities in detail, including why market participants might use them and the recent increase in borrowing.

bonds, COVID-19, financial markets, securities

September 2022

Australian Economy
Photo: Reserve Bank of Australia

The Reserve Bank's Liaison Program Turns 21

Jacqui Dwyer, Kate McLoughlin and Aaron Walker

In 2001, the Reserve Bank established its liaison program – a formal program of economic intelligence gathering, through which Bank staff meet frequently with firms, industry bodies, government agencies and community organisations. The program is systematic in its approach to collecting and assessing information, and the intelligence obtained is a useful complement to published sources of data and economic models in informing the Bank's assessment of economic conditions. In addition, the information gathered is available in near real time, making it useful for ‘nowcasting’ and understanding the implications of short-term shocks to the economy. This article looks at the process of liaison, the nature of the information collected and how it has been used over its 21 years of operation.

business, rba survey
Photo: Kentaroo Tryman – Getty Images

The Current Climate for Small Business Finance

Madeleine McCowage and Laura Nunn

Economic conditions for small and medium enterprises (SMEs) have been relatively strong since the second half of 2021, and demand for business finance is high. However, the environment remains challenging and uncertain, and interest rates on loans for SMEs are rising from historical lows. Small businesses continue to report that accessing funding through banks is a challenge, although new lenders and products are providing alternative sources of finance. The article considers these recent developments, drawing in particular on the discussions of the Small Business Finance Advisory Panel, which met in July this year.

business, credit, COVID-19, finance, wages
Photo: mapodile – Getty Images

The Cost of Card Payments for Merchants

Troy Gill, Cara Holland and Georgia Wiley

The average cost for a merchant to accept a card payment has declined over recent years. However, consumers are making more payments with cards than ever before, which is raising total payment costs for merchants. Smaller merchants also face notably higher card payment costs per transaction than larger merchants. To strengthen competition and help reduce the cost of accepting card payments, the Reserve Bank wants all merchants to be able to choose which card network is used to process debit transactions – a functionality known as least-cost routing (LCR). While considerable progress has been made, the payments industry has more work to do to provide and promote LCR. The Bank is taking further action to ensure that LCR will be available for all merchants.

fees, payments, retail, technology
Photo: d3sign – Getty Images

Trends in Australian Banks' Bond Issuance

Claire Johnson

Bonds account for around 10 per cent of Australian banks' funding, and bonds issued by banks account for about half of the non-government bond market. The Australian bank bond market is primarily driven by the five largest banks, which issue most of the banks' bonds. This article explores trends in Australian banks' senior unsecured bond issuance since the global financial crisis. The COVID-19 pandemic, and the policies implemented in response, significantly influenced bank bond issuance. In particular, banks' bond issuance declined for a period as they accessed funds through the Reserve Bank's Term Funding Facility; however, issuance has increased recently as the economy has recovered from the initial phase of the pandemic.

bonds, COVID-19, funding, global financial crisis
Australian Economy
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Sentiment, Uncertainty and Households' Inflation Expectations

Yad Haidari and Gulnara Nolan

High inflation expectations can have significant consequences for the economy as a whole, and can become self-reinforcing. It is therefore noteworthy that inflation expectations of Australian households are persistently higher than actual inflation. This is partly because when consumers are more uncertain about the economy, they tend to report their inflation expectations in round multiples of 5 per cent, which is higher than inflation has averaged over recent decades. In addition, there is a negative relationship between consumer sentiment and inflation expectations. This article examines the relationship between sentiment, uncertainty and households' inflation expectations in Australia, and considers how this uncertainty might be addressed. It suggests that targeted and clear communication about inflation can help to reduce uncertainty and provide consumers with a better understanding of the path of future inflation.

households, inflation, risk and uncertainty
Global Economy
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Wage-price Dynamics in a High-inflation Environment: The International Evidence

Neyavan Suthaharan and Joanna Bleakley

Headline inflation is at multi-decade highs in most advanced economies, reflecting a confluence of factors. Wages growth has also increased, but not to the same extent. This article examines the risk that a wage-price spiral could emerge in these economies by looking at historical experience and the various factors that could make a spiral more likely. It finds that the current episode has many differences to the 1970s, when a wage-price spiral did emerge. Central banks are now focused on ensuring inflation remains low, medium-term inflation expectations remain anchored and structural changes in the labour market reduce the likelihood that wages and inflation chase each other. Nonetheless, authorities need to be mindful of the risk of a wage-price spiral.

inflation, international, labour market, wages
Global Economy
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Evolving Financial Stress in China's Property Development Sector

Patrick Hendy

Financial stress in China's property development sector has attracted significant attention because it may have systemic consequences for financial stability in the broader Chinese economy. Though China Evergrande Group, one of the country's largest and most leveraged property developers, has received a considerable share of this attention, risks in the sector were building for some time prior to Evergrande's default in 2021. This article reviews contributing factors to the sector's financial fragility and explores the characteristics of the financial stress faced by major developers. It also considers some likely consequences of this fragility for the Chinese property development sector and beyond.

China, housing, investment, finance, financial stability

June 2022

Photo: Reserve Bank of Australia

What Can You Do With Your Damaged Banknotes?

Amanda Burton and Henry Winata

Through the Reserve Bank's damaged banknote claims service, members of the public can ask for their damaged banknotes to be assessed and the value redeemed. Removing poor-quality banknotes also supports the Bank's aim of ensuring that the public has confidence in Australian banknotes as a means of payment and a secure store of wealth. This article provides an overview of the service, its key users and the circumstances in which claims are lodged. While the value of the majority of claims is relatively low, claims containing banknotes damaged in storage can be significant, reflecting the role of cash as a secure store of wealth.

banknotes, currency, money
Photo: Reserve Bank of Australia

Recent Trends in Banknote Counterfeiting

Leigh Mann and Siddarth Roche

Counterfeiting of Australian banknotes is approaching its lowest level in a decade. Several factors are playing a role in this decline, including fewer transactions being made with cash, COVID-19-induced lockdowns, the rollout of a new banknote series with upgraded security features, and law enforcement continuing to interrupt counterfeiting operations. This article quantifies the effect of some of these factors, while exploring the broader trends in banknote counterfeiting.

banknotes, currency, money
Australian Economy
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Job Mobility in Australia during the COVID-19 Pandemic

Susan Black and Emma Chow

The COVID-19 pandemic has led to large disruptions to the Australian labour market. Initially, workers were less likely to change jobs because of the uncertain economic environment, the decrease in advertised jobs and the JobKeeper program that helped workers remain attached to their employers. More recently, job mobility has increased as workers have caught up on planned job changes or been encouraged by the strong labour market to change jobs, particularly in high-skilled roles experiencing strong labour demand. This article reviews developments in job mobility in Australia through the pandemic, and compares these outcomes to other advanced economies. It also examines the potential implications for wages; a high rate of job mobility tends to be associated with higher wages growth in a tight labour market, as employers in sectors with high demand for labour compete for new staff or raise wages to retain staff.

COVID-19, labour market, labour market, wages
Australian Economy Guest article
Photo: Jorge de Araujo

First Nations Businesses: Progress, Challenges and Opportunities

Michelle Evans and Cain Polidano

Australia's First Nations business sector is growing at a pace of around 4 per cent per year, fuelled by growing demand. However, many budding First Nations entrepreneurs still face substantial barriers to establishing a successful business. This article discusses the need to develop trust for effective policy environments that support First Nations businesses, and describes how ongoing challenges of access to financial, social and symbolic capital continue to test First Nations business owners. Despite this, there are opportunities for First Nations businesses in the forms of Indigenous preferential procurement policies, and First Nations-specific business development programs as well as financial products and services. It is not yet clear how effective the policy environment is in addressing access and discrimination challenges, nor how widespread the benefits are to First Nations businesses. As such, the article concludes by discussing the role of data development for accountability.

business, First Nations
Financial Stability
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Household Liquidity Buffers and Financial Stress

Lydia Wang

The ratio of household liquid assets to household income in Australia has increased substantially over recent decades, at both the aggregate and individual household levels. The increase in buffers has been most pronounced for households with mortgage debt and among indebted households – with those with the most debt typically holding the highest liquidity buffers. This is important from a financial stability perspective as liquidity buffers allow households to smooth their spending and maintain their debt payment obligations in the event of adverse shocks to their cash flows; as such, they are a key factor in reducing household financial stress. This article considers these trends and finds that, to the extent that rising liquidity buffers have increased household financial resilience, the risks associated with high and rising household indebtedness are unlikely to be as great as suggested by focusing on gross debt-to-income ratios alone.

debt, financial stability, households
Global Economy
Photo: Yuichiro Chino – Getty Images

An International Perspective on Monetary Policy Implementation Systems

Nick Baker and Sally Rafter

In response to the COVID-19 pandemic and building on policies introduced during the global financial crisis, central banks in advanced economies deployed balance sheet policies to support their economies and address disruptions to the smooth functioning of financial markets. The introduction of these policies has changed how most of these central banks implement their primary policy tool – the policy rate. This article describes how many central banks transitioned from a corridor system of monetary policy implementation to a de facto floor system. It also details the range of implications of choosing a floor system. While this transition may prove to be temporary for some central banks, others have signalled that they expect to retain a floor system in the long term.

COVID-19, financial markets, interest rates, international, monetary policy
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Bank Fees in Australia

Karl Sparks and Rachael Fitzpatrick

This article updates previous Reserve Bank research on bank fees charged to Australian households, businesses and government. Since 2021, improved data on the fees charged by banks have been available from the new Economic and Financial Statistics collection, which replaced the survey on banks' fee income undertaken annually since 1997 by the Reserve Bank. The new data suggest that the overall fees charged by banks declined in 2021. This decline was broadly based across different categories, although total fees charged on loans (excluding personal lending) increased moderately, in part reflecting the higher volume of lending activity.

banking, fees, rba survey
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Fallbacks for BBSW Securities

Duke Cole and Lara Pendle

The bank bill swap rate (BBSW) is an important short-term benchmark interest rate for Australian financial markets across various maturities. It is a robust benchmark based on a liquid market. However, it is possible that, at some point in the future, BBSW might no longer be robust. Market participants need to be prepared for the possibility that BBSW, or at least some BBSW tenors, cease to be published. To do so, participants should include a ‘robust, reasonable and fair’ fallback to another interest rate in their financial contracts. To promote appropriate use of fallbacks, the Reserve Bank will only accept securities referencing BBSW issued after 1 December 2022 as collateral in its domestic market operations if those securities include such a fallback. The article explains this change and how participants can prepare for the contingency of BBSW ceasing to exist.

financial markets, interest rates, securities

March 2022

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The Evolution of Interbank Settlement in Australia

Kasia Kopec and Chirag Rao

Electronic payments are ubiquitous in modern economies and result in financial obligations between different financial institutions. These interbank obligations need to be settled in a way that is safe and efficient to promote the stability of the Australian financial system. In Australia, interbank settlement is performed in the Reserve Bank Information and Transfer System (RITS), which is owned and operated by the Reserve Bank. Since the introduction of real-time gross settlement services in 1998, the functionality of RITS has continued to evolve in line with payment innovations and the increasing importance that electronic payment systems play in supporting economic activity in Australia. This article considers key moments in this evolution as well as potential future developments.

banking, payments, technology
Australian Economy
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Exploring the ‘Confidence Gap’

Joyce Tan

Previous Reserve Bank research has shown that female students and students from less advantaged backgrounds are more likely to report having a poor understanding of economics and lower confidence in their economics proficiency than other students. This is consistent with their falling participation in the subject. Using data from a survey administered by the Bank, this article investigates whether these negative perceptions are in line with students' observed proficiency or whether there is a ‘confidence gap’. It finds that females continue to report having poorer understanding and less confidence even after accounting for their observed proficiency, indicating a confidence gap. By contrast, students' self-perceptions by socio-economic status look to be in line with variations in their observed proficiency. These findings have implications for the design of interventions to encourage greater participation by these students and support increased diversity amongst the economics student body.

Australian Economy
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Tracking Consumption during the COVID-19 Pandemic

Rosa Bishop, John Boulter and Tom Rosewall

The COVID-19 pandemic was an unprecedented shock to the economy that caused large and unexpected changes in household spending behaviour. Restrictions on household activity limited opportunities to consume services and people switched to purchasing more goods. The recovery in consumption was much stronger than expected earlier in the pandemic because households quickly adapted to the pandemic shock with the support of significant fiscal and monetary policy measures. This article examines household spending during the pandemic using a range of sources of information that have enabled the Reserve Bank of Australia to track consumption in a timely way.

COVID-19, households, modelling
Australian Economy
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COVID-19 Health Risks and Labour Supply

Nalini Agarwal and James Bishop

There is evidence that concerns about becoming infected with COVID-19 at work have affected people's willingness to participate in the labour force in some countries. This article examines whether similar health concerns have contributed to a reduction in labour supply in Australia. It finds no evidence that these concerns had a discernible effect on labour supply during the COVID-19 outbreaks in 2020 and 2021. In early 2022, however, the substantial escalation in cases of the Omicron variant led a small number of people to avoid the workplace, at least temporarily.

COVID-19, labour market, labour market
Australian Economy
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The Significant Shift in Australia's Balance of Payments

Nicole Adams and Tim Atkin

Over recent years Australia has seen a large shift in its external accounts. In contrast to long-running deficits, the current account balance has now been in surplus for over two years, supported by record trade surpluses. The corollary of this is that the level of national savings has surpassed investment and Australia has become a net exporter of capital. This article examines these changes and highlights some key trends that are associated with this shift. These include the decline of foreign direct investment following the end of the mining boom, as well as an increase in purchases of foreign equities by Australian superannuation and investment funds. These developments have contributed to a significant decline in Australia's net foreign liability position as a percentage of GDP, which is at its lowest levels in a number of decades.

capital, export, international, investment, payments, trade
Financial Stability
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Are First Home Buyer Loans More Risky?

Maia Alfonzetti

Despite the rate of home ownership in Australia drifting down over recent decades, 2020 saw a large increase in first home purchases. Given the high level of housing prices and household indebtedness, this raises the question of whether first home buyer (FHB) loans contribute disproportionately to financial stability and macroeconomic risks. FHBs appear to be riskier than other owner-occupiers, at least during the first five years of the loan. They have higher loan-to-valuation ratios and lower liquidity buffers. While this might suggest FHBs would be more vulnerable than other borrowers during a negative income or housing price shock, recent experience indicates that FHBs have been no more likely to report financial stress or be in arrears. One potential explanation is that FHBs have historically experienced better labour market outcomes than other borrowers.

debt, finance, financial stability, housing
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Developments in Banks' Funding Costs and Lending Rates

Rachael Fitzpatrick, Callum Shaw and Anirudh Suthakar

This article updates previous Reserve Bank research on the ways in which developments in the composition and pricing of banks' funding sources have affected their overall cost of funds and influenced lending rates. Banks' funding costs declined a little over 2021 – after falling substantially in the previous year – supported by the Reserve Bank's policy measures. In aggregate, lending rates declined by more than funding costs. As a result, the major banks' average interest rate spread narrowed over the year. The decline in the aggregate lending rate primarily reflected strong price competition and ongoing refinancing activity, particularly in housing lending.

banking, cash rate, credit, interest rates, monetary policy
Photo: Yuichiro Chino – Getty Images

Australian Money Markets through the COVID-19 Pandemic

Ahmet Aziz, Calebe de Roure, Paul Hutchinson and Samual Nightingale

Money markets are used by banks and other entities to borrow and lend funds for short terms, and are central to the implementation and transmission of monetary policy in Australia. It is important that these markets function effectively in all economic conditions, including during the uncertain times of the COVID-19 pandemic. This article examines how the various money markets – including the cash, repo, bank bills, FX swaps and Treasury Notes markets – responded to events of the past two years. Ultimately it finds that Australian money markets have generally functioned well over this time. Short-term funding has remained readily available from these markets, as the RBA has substantially increased the supply of Exchange Settlement balances and investors have continued to desire safe and liquid investments. Over the past two years, money market rates have declined significantly as a result of the decreases in the cash rate target and the increased supply of Australian dollars in these markets.

banking, cash rate, COVID-19, exchange rate, financial markets, monetary policy
Photo: d3sign – Getty Images

Australian Securities Markets through the COVID-19 Pandemic

Claire Johnson, Kevin Lane and Nina McClure

The COVID-19 pandemic disrupted many parts of the Australian economy, including securities markets. These markets play an important role in our economy, including as a source of funding for firms and in the transmission of monetary policy. This article describes how Australian markets for private securities weathered the impact of the COVID-19 shock. As the pandemic escalated, volatility in securities markets increased sharply, and some assets became difficult or costly to trade. The Reserve Bank, along with federal, state and territory governments in Australia, introduced policies to help support the economy and to ensure financial institutions were able to continue lending to households and businesses. These measures helped to support conditions in securities markets, which improved substantially from mid-2020. In turn, the recovery in securities markets helped to support the availability of low-cost funding for Australian businesses and households. Overall, the volatility in these markets at the beginning of the pandemic was brief when compared with the global financial crisis.

COVID-19, financial markets, securities

The graphs in the Bulletin were generated using Mathematica.

ISSN 1837-7211 (Online)