2020

June 2020

Finance A bush fire burns through shrub land.
Photo: Stefan Mokrzecki – Getty Images

Transactional Banking at the RBA in Extraordinary Times

Talina Leung

The Reserve Bank of Australia (RBA) is the banker to the Commonwealth of Australia, supporting the Australian Government in its daily banking needs. During extraordinary times, such as the bushfires of the 2019/20 summer season or the current COVID-19 pandemic, demands on banking services are heightened as additional payments are made to Australians who require funds immediately. By modernising its products and service offerings and the underlying technology, the RBA has ensured payment and banking systems are fit to perform these tasks securely and reliably. In the past, additional payments during extraordinary times required additional effort and at times unconventional means. Today, government payments can be made seamlessly, even during crisis situations, ensuring funds are received without unnecessary delays.

banking, payments, npp, technology, pandemic
Global Economy Bank employees are wearing face masks during the Spanish Flu pandemic.
Photo: Reserve Bank of Australia – PN-006877

Economic Effects of the Spanish Flu

James Bishop

The Spanish flu reached Australia in 1919 and remains the country’s most severe pandemic in terms of health outcomes. At the peak of the pandemic, sickness due to influenza temporarily incapacitated 2 per cent of the labour force. However, despite the social distancing measures used by governments to contain the virus, few job losses in this period were due to a lack of available work. The labour market also recovered quickly, but it is not clear how relevant this experience is for the modern economy.

labour market, consumption, pandemic
Australian Economy A collage of newspaper headline clippings related to economic topics.
Photo: Allkindza – Getty Images

News Sentiment and the Economy

Kim Nguyen and Gianni La Cava

The large and immediate effect of the COVID-19 pandemic on economic activity has increased the need for more real-time indicators of the economy. This article discusses a new indicator of `news sentiment’, which uses a combination of text analysis, machine learning and newspaper articles. The news sentiment index complements other timely economic indicators and has the advantage of potentially being updated on a daily basis. The news sentiment index captures key macroeconomic events, such as economic downturns, and typically moves ahead of survey-based measures of sentiment. Related indicators, such as the news uncertainty index, similarly help to better understand real-time developments in the Australian economy.

technology, data analytics
Australian Economy An older male employee sits at a table talking to his younger colleagues.
Photo: Phil Boorman – Getty Images

Why Study (or Not Study) Economics? A Survey of High School Students

Tanya Livermore and Mike Major

There has been a stark decline in the size and diversity of the Year 12 Economics student population since the early 1990s. The Reserve Bank has commissioned a comprehensive survey of students to gain quantitative evidence of the factors contributing to this decline. The survey responses highlight that while economics in general is perceived to be important for society, many students lack an interest in, or understanding of, Economics as a subject. This finding is even more pronounced for students who are female, those from a lower socio-economic background and those from regional schools.

educators and students, rba survey
Payments A roll of Australian 50 dollar notes and some coins.
Photo: Vicki Smith – Getty Images

Bank Fees in Australia

Stephanie Crews and Michelle Lewis

The Reserve Bank’s 23rd annual bank fees survey shows that, overall, banks’ income from fees declined in 2019. Fee income from households decreased, largely driven by lower fees from deposit accounts. A number of reforms related to merchant services contributed to banks’ fee income from businesses growing at a slower pace than in recent years.

banking, fees, atm, rba survey
Payments The hands of an older woman holding a few 50 dollar notes.
Photo: Toni Faint – Getty Images

Cash Use in Australia: Results from the 2019 Consumer Payments Survey

Luc Delaney, Nina McClure and Richard Finlay

The Bank’s 2019 Consumer Payments Survey (CPS) suggests that the use of cash for transactions has continued to fall alongside growing use of electronic payment methods. Despite this, a substantial share of consumers still use cash intensively, with this share having reduced only a little over recent years. These high cash users are more likely to be older, have lower household income, live in regional areas, and/or have limited internet access. The survey suggests that around one-quarter of consumers would face major inconvenience or genuine hardship if they could no longer use cash, although most respondents stated that their current access to cash was convenient. The survey was conducted before the emergence of COVID-19 and the associated social distancing measures, however, and so did not capture any change in behaviour that may have resulted from this.

payments, rba survey, data analytics, money
Australian Economy A collection of old and new mobile phones.
Photo: Peter Dazeley – Getty Images

Quality Change and Inflation Measurement

Stephanie Parsons

Households’ perceptions of inflation can differ from inflation as measured by the Consumer Price Index (CPI). One factor that may contribute to this difference is that the CPI seeks to take into account changes in the quality of many items that households buy. Around 2–3 per cent of the CPI basket is adjusted for quality change each quarter, with the prices of consumer durables most affected. While a range of methods have been developed to help statisticians identify and quantify quality change, it remains a challenging area of price measurement.

inflation, consumption, prices, data analytics
Australian Economy The hand of a woman inserts a coin into a piggy bank.
Photo: Nattakorn Maneerat / EyeEm – Getty Images

Household Wealth prior to COVID-19: Evidence from the 2018 HILDA Survey

Nicole Adams, Cara Holland, Gabrielle Penrose and Lorenzo Schofer

This article examines the distribution of wealth in Australia prior to the COVID-19 pandemic and considers the implications for the financial resilience of households during the associated economic downturn. In terms of their wealth, most Australian households appear well placed to withstand a temporary fall in income. However, younger households and those working in industries most affected by activity restrictions are likely to be more vulnerable to income loss; only around half of these households could cover three months of expenses out of their liquid assets. Highly indebted households that experience shocks to their income and have limited liquid assets will also find this period particularly challenging. Policies to support household income, as well as those aimed at rescheduling debt repayments, should cushion these effects. The resilience of households will also depend on the timing and sustainability of the economic recovery.

wealth, data analytics, households, debt, pandemic
Global Economy An aerial view of motorways and skyscrapers in a residential area in Beijing, China.
Photo: Liyao Xie – Getty Images

China's Residential Property Sector

Jonathan Kemp, Anirudh Suthakar and Tom Williams

The property sector is a significant driver of economic growth in China and a key source of demand for Australian commodity exports. Authorities have become increasingly wary of financial risks in the sector, and moved to reduce the importance of policies directed at real estate for managing short-run fluctuations in aggregate demand. The effect of COVID-19 on property sales and developer balance sheets necessitated a moderate easing of policy to support the real estate sector, but it only appears to have delayed rather than halted efforts to de-risk the sector.

china, housing, investment, prices, pandemic

March 2020

Payments Dollar signs emerge from a mobile phone held in a hand.
Photo: Sarinya Pinngam – Getty Images

Two Years of Fast Payments in Australia

Emilie Fitzgerald and Alexandra Rush

It has been two years since the public launch of the New Payments Platform (NPP) and the Fast Settlement Service (FSS). Together, the NPP and FSS now enable customers of more than 90 financial institutions to make fast payments 24 hours a day, every day of the week (‘24/7’). Customers can send detailed information with a payment and nominate the payment recipient in a simple way. While the rollout of the NPP has been gradual, usage grew rapidly over the second half of 2019 and compares favourably with other successful fast payment systems introduced overseas. With a range of new functionality under development, the NPP and FSS are well placed to deliver innovative new payment services to support the Australian economy into the future.

payments, NPP, technology
Payments A mobile phone with a blurred screen of transactions.
Photo: Carolyn Hebbard – Getty Images

Consumer Payment Behaviour in Australia

James Caddy, Luc Delaney, Chay Fisher and Clare Noone

The Reserve Bank’s 2019 Consumer Payments Survey has provided further evidence that Australian consumers are increasingly preferring to use electronic payment methods. Many people now tap their cards, or sometimes phones, for small purchases rather than paying in cash. Consumers also have an increasing range of options available for making everyday payments. Despite this, cash still accounts for a significant share of lower-value payments and a material proportion of the population continues to make many of their payments in cash.

payments, rba survey, data analytics, money
Payments A customer holds their credit card above an eftpos reader.
Photo: Hispanolistic – Getty Images

The Cost of Card Payments for Merchants

Kateryna Occhiutto

Data on merchants’ costs of accepting card payments show large differences in payment costs across both merchants and card systems. Smaller businesses typically face higher payment costs than larger businesses, credit card transactions are generally more expensive that debit cards, and debit card transactions tend to be more costly for most merchants when processed through the international card schemes compared with the domestic debit scheme. Overall costs of accepting card payments have nevertheless declined over the past decade, following the implementation of various reforms by the Bank.

payments, fees, retail
Finance Outlines of skyscrapers and images of charts mirror on glass facades.
Photo: Busakorn Pongparnit – Getty Images

Developments in Banks' Funding Costs and Lending Rates

Susan Black, Dmitry Titkov and Lydia Wang

Banks’ funding costs declined over 2019, driven by reductions in the cash rate. Lenders passed most of the decrease in funding costs through to interest rates on mortgages and business loans. Funding costs and lending rates are at historical lows.

funding composition, banking, finance, bonds
Australian Economy The sun rises behind windmills and solar panels.
Photo: zhongguo – Getty Images

Renewable Energy Investment in Australia

Timoth de Atholia, Gordon Flannigan and Sharon Lai

Renewable energy investment has increased significantly in Australia over recent years, contributing to a continuing shift in the energy generation mix away from traditional fossil fuel sources. Current estimates suggest that investment in renewable energy has moderated from its recent peak and is likely to decline further over the next year or two. In the longer term, the transition towards renewable energy is expected to continue. Significant coal-fired generation capacity will be retired over coming decades and is likely to be replaced mainly by distributed energy resources and large-scale renewable energy generators, supported by energy storage.

investment, non-mining
Finance Detail of an old stone building's ornament.
Photo: ilbusca – Getty Images

The Road to Australian Dollar Funding

Elliott James and Christian Vallence

A key feature of Australia’s financial system is that nearly all liabilities are denominated in, or hedged into, Australian dollars. A pre-condition for this state of affairs is that investors are willing to hold Australian dollar-denominated assets. Investor confidence in Australian dollar assets is supported by Australia’s sound institutional framework, history of positive macroeconomic outcomes, and well-functioning financial system. Australia’s journey to funding in its own currency spanned nearly a century and involved various costs. Today, these funding arrangements confer substantial benefits to the Australian economy, including by reinforcing the same positive economic, financial and institutional outcomes that made Australian dollar funding possible in the first place.

finance, currency, forex, bonds
Australian Economy The detail of a map showing the Australian continent.
Photo: omersukrugoksu – Getty Images

Regional Variation in Economic Conditions 

Fiona Price

Differences in economic conditions between capital cities and regional areas have widened since the early 2000s. Some regional areas, particularly outer regional and remote areas, have faced considerable structural changes and have taken longer than other regions to adapt to these developments. Most regional labour markets appear to have adjusted quite well to the differences in regional economic conditions, though the adjustment process may have been more difficult for some regions.

monetary policy, labour market, mining, technology, capital
Australian Economy Family members spanning three generations gather outside.
Photo: xavierarnau, filadendron and Thurtell – Getty Images

Demographic Trends, Household Finances and Spending

Tomas Cokis and Kate McLoughlin

The share of the population in their peak earning and spending years (ages 35–54) has decreased over the past decade, while the share aged 65 and above has increased. Demographic change has tended to reduce aggregate growth in household income and consumption, but by less than what previous patterns of household spending would suggest. This is because older households have earned and consumed more than in the past, and they have become wealthier. By contrast, growth in spending by younger households has been subdued, consistent with their weak income growth. The different earning and spending behaviour of households across different age groups will continue to affect trends in aggregate household consumption and income as the population ages further.

consumption, wealth, finance, debt

The graphs in the Bulletin were generated using Mathematica.

ISSN 1837-7211 (Online)