Via the excellent Damien Boey at Credit Suisse:
Overnight, RBA Governor delivered a speech about unconventional monetary policy, as it might apply in Australia.
Key points were as follows:
- The Bank does not expect to get to quantitative easing, or negative interest rate policy in this cycle, because it expects gradual recovery towards its growth and inflation targets.
- If quantitative easing were to be considered, it would not be before rates hit 0.25% – the Fed’s lower bound on interest rates from the past cycle. Quantitative easing is not under consideration before this point.
- If quantitative easing were to be considered, it would not be in the form of private sector asset purchases. Rather, the Bank prefers purchases of government bonds.
- The Bank recognizes that quantitative easing can have some unintended, and unhelpful side effects, such as the perception of monetary financing of government spending – the blurring of the lines between fiscal and monetary policies. But equally, the Bank recognizes that rate cuts can be perverse near the lower bound. Officials frown on the use of negative interest rates, given mixed evidence about its effectiveness abroad. Also, they recognize that there is a “reversal interest rate”, where rate cuts become contractionary, although this could still be some distance away.
