Insight: QE Not on RBA Mind Now But Future Not Ruled Out

• Published on
• 27 Nov 2019, 03:32 PM

By Sophia Rodrigues

The Reserve Bank of Australia is not thinking about Quantitative Easing as a policy option right now but thinks there’s a possibility, albeit low, that it might be required in the future.

The emphasis is on “right now,” which means the assessment is based on current thinking about the economy

It also means the RBA is not completely ruling out using QE.

These were the main points from Governor Philip Lowe’s speech on Tuesday night titled, “Unconventional Monetary Policy: Some Lessons from Overseas,” delivered at the Australian Business Economists Dinner in Sydney.

The speech was one of the most clearest communications from the RBA on its thoughts about QE in general and which of the QE options would be used in Australia, if it moved in that direction.

For QE to happen in Australia, the RBA needs to be convinced that it is unlikely to meets its full employment and inflation goals over the medium term.

But at this moment, the RBA is expecting to make progress towards its goals over the next couple of years, and moreover it still scope to deliver 50bps of rate cuts because the cash rate has to first go to 0.25%.

So it makes sense for Lowe to say that the RBA is not thinking about QE now.

If the RBA uses QE as a policy optiion it would via purchase of government bonds.

“If – and it is important to emphasise the word if – the Reserve Bank were to undertake a program of quantitative easing, we would purchase government bonds, and we would do so in the secondary market,” Lowe said. The aim would be to lower risk-free interest rates along the yield curve, while also reinforcing the RBA’s commitment to keep the cash rate low for an extended period.

--Contact: sophia@centralbankintel.com