COVID-19 in Australia:
RBA measures, big business
and public sentiment

COVID-19 in Australia: RBA measures, big business and public sentiment

David Chu, Head of International Business, discusses the RBA measures, big business and public sentiment.

2020-04-14

David Chu, Head of International Business, recently joined Thomas Sung (host) on the SBS Radio Cantonese Program to discuss the Reserve Bank of Australia's new measures, as well as big business and public sentiment in response to COVID-19 in Australia. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Host: After my briefing on the global securities markets, let us get back to Australia. The Reserve Bank of Australia (RBA) announced yesterday that they will not take further interest rate actions. The government and the RBA have recently been introducing one measure after another. What is the reaction from the business community? What is the reaction from our fellow Australians? Today we have David Chu, Head of International Business of ShineWing Australia, to share with us his analysis.

David Chu: Actually, since my last sharing with you, the RBA has held a special meeting, to cut the rate to 0.25%. At the same time, the RBA has taken quantitative easing (QE) measures. QE is meant to increase  market liquidity. The worst thing at this stage is that when businesses are not doing well, a lot of SMEs will be stuck with receivables and inventories. If no one comes to buy their products, they will not be able to recover their funds. Therefore, the RBA provides financing of roughly $90 billion to the market, allowing banks to sell their government bonds to the RBA for cash, so that the banks will have stronger money supplies to lend to businesses or clients that need them. The overall QE approach currently applied by the RBA is similar to the approach taken by the United States in the last financial crisis. There is a little bit of difference in the execution.

Last time, the Federal Reserve clearly told you how much they would buy, or how much they would supply to the market. This time RBA will keep track of the market movement before deciding on the amount to put in. They aim to keep the market rate at around 0.25% through buying and selling government bonds. The RBA has so far used about $36 billion, about one quarter of the budgeted amount, since the announcement of QE measures. Secondly, there is another measure which is aimed at financing around $15 billion for some smaller banks and non-bank financial institutions, by taking over their home mortgage loans. The banks generally lend money to people to buy properties with repayment terms of 20 or 30 years.  As these funds will remain illiquid for 20 or 30 years, the banks usually bundle these home mortgages and resell them by securitisation.

In turn, the financial institutions who buy these bonds also accumulate long term investments. Therefore, the current QE measures also include around $15 billion exclusively for buying these home mortgages, giving smaller and banks and non-bank institutions opportunities to recover funds, in order to help some SMEs through additional lending.  This is just for businesses with cash flow issues.  Although business volume has reduced, they still need to pay wages and costs. These measures will allow SMEs to have some breathing space.

Host: Let us come back to the Stage 3 lockdown. It is apparent that all businesses languish. A lot of stores cannot open for business. Measures are being introduced with the hope that businesses can continue to retain their employees. In fact, how are the big companies dealing with this?

David: The government is providing around $130 billion to businesses, so that they will not lay off employees but retain them, and will allow a quick rebound when the economy recovers or the pandemic subsides. Even so, a lot of businesses really cannot resume operations. First, they might not have demand anymore. Second, even though they have business, the supply chain may have been upset, given the lack of raw materials or components, which prevents production from resuming even if orders are coming in. That being said, I have seen some organisations trying  to work things out with their employees. Given the overall reduction in business and customer demands, companies have asked their employees to work 3 or 4 days a week and pay 60% or 80% of their original salary, with the hope that the whole company will get through this tough time together. The most important thing is to not let the people of this country lose hope. The government is introducing a number of measures to give people a greater hope after the pandemic passes.

Host: What are the reactions among the people?

David: A couple of surveys have just been published. Professional research firm Roy Morgan interviewed 1,000 respondents recently. People showed greater recognition of the government last week than three weeks ago.  For instance, after the introduction of these government measures, according to their survey, 65% of Australians are now satisfied with the government’s measures, as compared to merely 43% two weeks ago. Also, people have a greater hope for the future. Two weeks ago, 85% of the respondents indicated that the darkest days have yet to come. The most recent survey showed only about 60% were holding that view now. This is a sign that people have increased confidence in the future. On another note, we can look at consumer confidence, which increased by 10% in the past two weeks, showing positive reactions to the measures taken by the government. 

Host: Though these are expedient measures, they at least will help to stop people from feeling down, right?

David: Yes. Some experts indicate that it is most important for people to have hope for the future in the current situation, and some articles discuss how to maintain such hope. First is to embrace this situation. Second is that people should work out a plan which should not include expectations to get everything to be accomplished instantly, but rather aiming these accomplishments at one or two weeks, namely setting short term goals. Third is we may have to be courageous. Rather than being focused on the dark side of something, try to look on the bright side of it. Fourth is we may need more communication with each other.

Now, the issue is that many companies have asked their employees to work from home, resulting in a decrease of communication between work colleagues. Some experts say that both employers and employees can create some opportunities for communications among themselves. Bosses need to communicate more with their people, to alleviate the negative emotions due to the failure to physically come to work and loss of social life as a result of the pandemic. Many experts advise people to look on the positive side. 

Host: Then what can people expect?

David: It seems no one can make any forecast at the moment. All we can hope for is that the pandemic subsides as soon as possible. It could be one month, two months or three months, the sooner the better. If these government measures work well, it will take a shorter time to rebound after the pandemic. The most important thing is that the recovery of the global economy cannot be done by just one or two countries, but requires concerted efforts of all governments around the world, as noted recently by Henry Kissinger, former Secretary of the United States of America. Only by doing so can we have a more rapid rebound. 

Host: Then we can just hope for a better tomorrow. Ok. Big thanks to Mr David Chu, Head of International Business of ShineWing Australia for sharing with us his view on the current economic situation of Australia. Thank you.

David: Thank you. Thanks everybody.

 

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Get in touch

David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

David Chu

E dchu@shinewing.com.au


This podcast was originally published on SBS Cantonese Radio on 8 April 2020.
Disclaimer: The material contained in this page is in the nature of general comment and information only and is not advice. The material should not be relied upon. ShineWing Australia, and related entity, or any of its offices, employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in the publication.