Analysis: RBA QE Bond-Buying to Continue But May Become Ad Hoc

By Sophia Rodrigues

The Reserve Bank of Australia may move to ad hoc purchases of government bonds to ensure market doesn’t get too addicted to its presence in the secondary market while also making sure it is not sending a signal of an end to Quantitative Easing.

Whether this means the RBA would make small purchases each week or just enter the market when needed remains unclear.

But what is very likely is the RBA would step in if the three-year target deviates materially from the 0.25% level or if it notices dislocation in the market. In such situations, the RBA would raise the amount of bond-buying.

In short, the RBA is likely to move to less frequent bond purchases, with the amount likely to go up or down, depending on market conditions.

MONETARY POLICY DECISION STATEMENT VS MINUTES

In the statement following the April 7 monetary policy board meeting, the RBA signalled the frequency of long-dated bond-buying will be adjusted as necessary according to market conditions.

But in the minutes of the meeting, published Tuesday, the RBA also said the size of bond-buying could become smaller. “If conditions continued to improve, it was likely that smaller and less frequent purchases of government bonds would be required,” the RBA said.

The RBA has so far not adjusted the frequency, continuing to buy bonds on a daily basis. However, since April 7, it has reduced the amount of daily purchases from A$2.0 billion on that day to A$500 million on April 20. This morning it announced purchases at the same low level of A$500 million, indicating it might be the lowest daily bond-buying it would do.

The RBA did its first bond-buying via auction on March 20 and until Monday it bought A$46.5 billion of bonds, including A$8.5 billion of semis.

Last Thursday, it bought bonds in the 2021-2023 maturity bracket, and the cut-off yield for four of the five bonds was below 0.25%. The April 2023 – the true three-year bond was bought at a slightly higher cut-off of 0.2625%.

--Contact: sophia@centralbankintel.com