RBA Kent: Interest Rates Lower Than Otherwise Due To Forward Guidance
- Published on
- 20 Oct 2020, 03:27 PM
RBA Kent: Interest Rates Lower Than Otherwise Due To Forward Guidance
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By Sophia Rodrigues
(Updated copy with comments from Q&A)
The Reserve Bank of Australia’s amended forward guidance is keeping interest rates lower than others because the focus is on actual inflation, Assistant Governor Christopher Kent said Tuesday.
Kent was speaking at the IFR’s Australia DCM webinar on the topic, “The Stance of Monetary Policy in a World of Numerous Tools.”
The RBA wants to see labor market conditions improve to an extent that is consistent with inflation being sustainably in the 2% to 3% target range and it will not increase the cash rate until actual inflation is sustainably in the target range, Kent said, reiterating the message from Governor Philip Lowe’s speech last week.
“This forward guidance has contributed to interest rates being lower than otherwise, as rates across the economy depend, among other things, on expectations of future cash rates,” Kent said.
The theme of Kent’s speech was about the expansion in the RBA’s balance sheet which is the measure of the overall easing provided since the pandemic.
According to Kent, the easing in financial conditions since the start of the pandemic is greater than during the global financial crisis despite just 50bps reduction in the cash rate now versus 400bps then.
Lowe said the RBA is using a number of monetary policy tools to support the economy and this means the task of assessing the stance of monetary policy is very different and more complex than it used to be.
At the Q&A session, Kent gave a clear hint that further easing in monetary policy is on the cards.
On bond-buying, Kent said he won’t speculate on the details but added the options include buying bonds further out in the curve to supplement the three-year yield target where purchases could occur on a regular basis.
The aim would be to bring the yield curve lower and reduce borrowing costs for the government and the private sector. It would have also portfolio balancing effect and lead to a lower exchange rate than otherwise, he said.
--Contact: Sophia@centralbankintel.com