In an interview with News 24, Reserve Bank of Australia Assistant Governor for Financial Markets Christopher Kent assessed the central bank’s pandemic quantitative easing program as less effective than its cash rate cuts and Term Funding Facility. The RBA’s best estimate is that the program reduced yields across the curve by about 30 basis points, while also limiting upward pressure on the Australian dollar. Kent did not rule out using quantitative easing in a future crisis. Kent distinguished the later quantitative easing program from the RBA’s bond purchases in early 2020, which addressed severe market dysfunction and helped restore bond market liquidity. Quantitative easing was introduced later that year to provide additional stimulus when the cash rate had reached 0.1%, inflation was weak and pandemic restrictions remained in place. The RBA decided after the program ended to hold the bonds to maturity rather than sell them because the cash rate was sufficient to tighten financial conditions and holding the portfolio was expected to be more profitable. More than AUD 300 billion of bonds are now rolling off, with most expected to leave the RBA’s balance sheet within three years. The central bank continues to operate with negative equity under a plan to rebuild its capital over time, while the Australian government is refinancing maturing debt at higher interest rates than when the bonds were issued.
Reserve Bank of Australia assesses pandemic quantitative easing as less effective, estimates 30 basis point yield impact
Reserve Bank of Australia Assistant Governor Christopher Kent assessed the pandemic quantitative easing program as less effective than cash rate cuts and the Term Funding Facility, estimating that it lowered yields by about 30 basis points. More than AUD 300 billion of bonds are rolling off the balance sheet, with most expected to mature within three years, although the RBA has not ruled out using quantitative easing in a future crisis.