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© Reuters. File photo: The Australian dollar is shown in the illustrated photo on February 8, 2018. REUTERS/Daniel Munoz

Pauline Duran

Sydney (Reuters)-The Australian prudential regulator told banks on Monday that they must develop a plan to deal with the possibility of zero or negative interest rates by April 2022. A previous consultation showed that such interest rates are Circumstances may pose an “operational challenge.”

Although the Reserve Bank of Australia has repeatedly stated that the country’s cash interest rate is unlikely to be negative, the Australian Prudential Regulation Authority (APRA) stated that “other interest rates determined by the financial market may fall to zero or below zero at any time. .”

Therefore, APRA requires banks to take “reasonable steps” to prepare for this situation and “at least develop a tactical solution to implement zero and negative market interest rates and cash rates by April 30, 2022.”

APRA Bank Officer Therese McCarthy Hockey said in a letter to the bank: “The tactical solution is usually a short-term repair, involving workarounds on the periphery of the existing system and coverage of the downstream system.”

“APRA believes that the risks arising from (banks) lack of preparation for zero and negative interest rates are significant because this may have a significant impact on (its) risk management, hedging, operating procedures, contracts, product disclosure, IT and accounting systems. field.”

Although banks stated during the consultation that they are capable of dealing with zero interest rates and negative market interest rates for financial products normally handled by their Treasury system, other banks stated that, for example, such interest rates for retail loans or deposit products would pose an “operational challenge” .”

McCarthy Hockey added: “Therefore, insufficient preparation for the possibility of zero and negative interest rates may have an adverse effect on (the bank), its customers and the markets in which they operate.”

Since November 2020, Australia’s cash interest rate has remained at a historical low of 0.10%. The yield on short-term government bills became negative for the first time last month.

APRA’s consultation period starts in December and will last until August 20, and then the regulator will finalize its expectations before October 31.

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