• Small businesses not required to repay loans over next 6 months
  • Reserve Bank deploys heavier financial weaponry
  • States and territories unveil plans to boost business

Amid another volatile and transformative week for the economy, more stimulus packages have been announced by the Reserve Bank as well as the state and territory governments. Additionally, all the ‘big four’ banks and a number of other lenders have also allowed Covid-19 hit small businesses (with total loans of less than $3 million) to cease loan repayments for the next 6 months. It is estimated that this will free up $8 billion in cash flow for small businesses over the next 6 months.

The federal government is also due to announce a suite of new supports following on from its $17 billion plan announced last week with a further set of measures to prop up economic activity at a particularly difficult time.

Given the exceptional difficulties faced by small businesses in ensuring that enough money comes in each week, the focus of this week’s interventions is welcome. Small businesses constitute 98.5% of the construction industry. For a start, the Reserve Bank has cut its official cash rate to a new all-time low of 0.25%. For the first time ever in Australia, the RBA is embarking on a round of Quantitative Easing which was largely successful in reviving many economies in the aftermath of the GFC. Both of these measures are blunt instruments which should enhance conditions right across the Australian economic spectrum.

The Reserve Bank is also offering tailored support to small business finance through the creation of a $90 billion facility for banks to make credit available to small businesses. In response, CBA has cut its small business lending rate by 1 percentage point.

The co-ordinated nature of this week’s announcements is crucial and meant that both APRA and the ACCC to relax their regulations around capital requirements and competition in order to ensure that the full benefits can be reaped.

Of course, the continued crisis around coronavirus is the backdrop to all of this. Events continue to change on a daily basis. Over the past seven days, much of Europe has gone into lockdown with only essential travel outside of the home permitted. Australia has seen domestic flights severely curtailed and all non-residents barred from entering Australia. Restrictions around public gatherings have also been increased. Until the crisis subsides, the role of governments and central banks in filling the vast demand shortfall in the economy will be vital.

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Shane Garrett

Chief Economist

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