RBA’s Kent Asserts AUD 5% Lower Than Otherwise Due to MonPol Measures

• Published on
• 17 Feb 2021, 01:33 PM

By Sophia Rodrigues

The Australian dollar is 5% lower in trade-weighted terms than otherwise due to the Reserve Bank’s monetary policy measures, Assistant Governor Christopher Kent asserted Wednesday.

Kent made the comments at a Q&A session following a speech at the Australian Corporate Treasury Association FX webinar. The comment on the exchange rate was a repeat of what he said earlier in the speech.

“I would assert that a significant part of that (lower than otherwise Australian dollar) is due to our policies, including our bond purchase program,” Kent said.

According to Kent, based on history the Australian dollar would have gone up much more since November because of significant rise in terms of trade. But it rose 5% less than it would otherwise have.

At the Q&A, Kent said the RBA’s monetary policy will be guided entirely by domestic economic conditions and outlook. So, if other central banks pull back a little bit on their policy stimulus, the RBA might not follow because it will focus entirely on closing output gap, tight labor market, higher wage growth and sustainably higher inflation.

Kent also pointed out that if RBA retains stimulus while others withdraw, it will likely lower the Australian dollar and help the economy.

Overall, “we will be looking not so much on what other central banks are doing but what is happening in the domestic economy and what our financial conditions are,” Kent said.

On the RBA’s QE, Kent said the objective is to “crowd out someone’s holdings,” and the RBA’s intention is to hold the bonds, so yields are pushed lower than otherwise.

The RBA is not concerned that its bond purchases is creating dysfunction in the market and doesn’t believe it is in prospect.

--Contact: Sophia@centralbankintel.com