Economic policy

Praise for Australia’s economic policy response to COVID-19

Movements of banking and fintech stocks on the Australian stock exchange in 2020. Credit: Flinders University

Australia’s major banking and fintech sectors have been buoyed by the government’s early macroeconomic responses to the challenges posed by COVID-19, new research shows.

Financial experts from Flinders University and Griffith University examined the economic lessons learned during the first year of the country’s response to the COVID-19 pandemic and found that the immediate actions taken by the federal government and the Reserve Bank of Australia in early to mid-2020 had a stabilizing effect on the domestic banking and capital market sectors.

“Policy responses to the pandemic are an important opportunity to assess Australia’s economic response to a crisis caused by factors beyond the country’s control,” says Dr Jak Kakhkharov, from the College of Business, Government and Law. from Flinders University.

“The response from fintech stocks has been more sensitive and in many cases contrasting with changes in government emergency measures, news on COVID-19 and announcements related to monetary policy, compared to banks. “

“The findings of this study place a strong emphasis on macroeconomic policy measures as the best stabilizing policy tool when managing the banking sector and capital market in times of such crises in Australia.”

The study looked at the impact of news related to COVID-19, monetary policy interventions, containment measures and the lifting of restrictions on Australian bank and fintech stock prices.

Overall, bank and fintech stock prices were more affected by the government’s macroeconomic announcements and the unwinding of containment measures than by monetary policy interventions at the start of the crisis.

While banks and fintech stocks were included in a sharp decline in the All Ordinaries index in March 2020, fintech stocks also saw steeper declines in February and March 2020 before recovering remarkably from these dips (see attached chart).

Monetary policy interventions drove down bank and fintech stock prices during the first phase of the COVID-19 pandemic.

Share prices of smaller and often more volatile fintech stocks – operating in cybersecurity, mobile transactions, data analytics, blockchain, peer-to-peer businesses, robotic advertising and internet sectors objects (IoT) – reacted differently to the crisis, proving more susceptible to rapid rounds of monetary interventions.

Banks play a central role in the Australian financial system, holding almost 60% of financial institutions’ assets.

“This study suggests that there is a need for greater emphasis on macroeconomic policy interventions in Australia to stabilize this stock market sector when managing future crises caused by external factors,” the researchers conclude.

Macroeconomic measures used included closure of non-essential businesses, Australian government guarantee for SME loans, JobKeeper Payment scheme, other business support/restrictions.

Monetary policy interventions include cash rate adjustments, decisions to leave the cash rate unchanged, a quantitative easing program and a term funding facility for the banking system, with particular credit support to small and medium enterprises.

Researchers suggest further analysis of the long-term effects of policy responses introduced since 2020 to better manage future responses, including the pros and cons of government income support measures and additional restrictions imposed to contain the spread of the virus. , and economic efforts to maintain major stock sectors are on track for investors and economic stability.

“The pandemic has engulfed all economies and triggered a complementary response from federal governments and monetary authorities, ranging from economic restrictions and easing, temporary business shutdowns, quantitative easing and rate cuts. interest rates and fiscal safety nets,” said Dr Kakhkharov.

“The policy responses of governments and central banks around the world to the financial market turmoil caused by the pandemic continue to support economies and markets in the months, if not years, to come.”

The article was published in the Pacific Basin Finance Journal.

Unconventional monetary policy and banking risk-taking

More information:
Jakhongir Kakhkharov et al, COVID-19 and Policy Responses: Early Evidence in Banks and FinTech Stocks, Pacific Basin Finance Journal (2022). DOI: 10.1016/j.pacfin.2022.101815

Provided by Flinders University

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