RBA Debelle: Monitoring QE Impact on Mkt; Prepared To Adjust Program If Needed

--RBA CAREFULLY MONITORING IMPACT OF BOND-BUYING ON MARKET
--ALERT TO SIGN OF MKT DYSFUNCTION, PREPARED TO ADJUST PROGRAM IF NEEDED
--VACCINES NEWS TO BOLSTER CONFIDENCE BUT RECOVERY WILL BE UNEVEN
--FALL IN YLDS ACROSS CURVE LOWERED AUD RELATIVE TO WHAT IT WOULD BE
--MATERIALLY LOWER UNEMPLOYMENT NEED TO BOOST WAGES GROWTH, INFLATION
--BOND-BUYING UNDER 3-YR TARGET COULD HAPPEN OUTSIDE MON, THU IF NEEDED
--BE CAREFUL OF REMOVING STIMULUS TOO EARLY

By Sophia Rodrigues

The Reserve Bank of Australia is monitoring the impact of its bond purchases on the market, including any sign of dysfunction and is prepared to adjust the bond-buying program, Deputy Governor Guy Debelle said Tuesday.

In a speech titled, “Monetary Policy in 2020” delivered to the Australian Business Economists, Debelle explained how the RBA’s bond purchases occur.

He noted that purchases of Australian government securities under QE, and under the 3-year target happen on Mondays and Thursday but added that buying under the target could happen on other days if necessary.

The RBA accepts bids that are cheapest relative to the mid-market price for the relevant bond, and in case of Semis purchases it also ensures allocations are broadly consistent with size of the States’ bond program.

Debelle said the RBA is carefully monitoring the impact of its bond purchases on the market. “We are alert to any sign of dysfunction in the market, and are prepared to adjust the program if necessary.”

Debelle began his speech my making references to his 2018 speech to the same audience where he talked about the lessons and questions from the global financial crisis.

He pointed to four lessons that he highlighted in that speech, but added one more lesson this time. “Be careful of removing the stimulus too early. A number of European countries learned this lesson to their cost after the global financial crisis.”

He alluded to the message at the end of his speech when he said the fiscal and monetary support will boost spending in the economy, and a materially lower unemployment is needed to see sustainably higher inflation.

“A materially lower unemployment rate is clearly desirable in itself, but will also be necessary before we will see sustainably higher wages growth and inflation.”

In the speech Debelle explained how the RBA’s monetary policy easing until now has lowered borrowing costs for households, businesses and the government. The decline in interest rates across the yield curve has lowered the exchange rate, relative to what it otherwise would be, he added.

The RBA’s easing measures and the fiscal stimulus is supporting spending the economy, and the lower exchange rate is helping too.

On recent news about vaccines, Debelle said that while it should help bolster that confidence, the recovery will be uneven. “It is likely to be some time before the vaccines will be widely available and distributed.”

--Contact: sophia@centralbankintel.com