Unconventional policy ‘unlikely’, RBA says

(Australian Associated Press)


The Reserve Bank has told MPs it is “unlikely” that it will need to employ unconventional monetary measures, even as economists predict more rate cuts from the central bank.

Responding to written questions from the House of Representatives Standing Committee on Economics, the RBA again acknowledged it had been studying the effects of such moves in other countries and could consider them, but that did not imply acceptance they would be needed.

“While at this point it is unlikely that the Reserve Bank will need to employ unconventional monetary measures, the Reserve Bank Board considered it prudent to understand the issues involved,” the RBA said.

“At a cash rate of one per cent, the Reserve Bank Board still has scope for conventional policy easing, should it be required.”

NAB economists, who had already tipped the RBA to cut to a new record low 0.75 per cent in November, on Wednesday updated their outlook to include a further reduction to 0.5 per cent in February.

They said the central bank would then outline plans on so-called unconventional policy, which could include buying government bonds and longer term funding to banks.

The RBA told MPs the former was a likely option.

“While it is difficult to rule any specific measure in or out, the focus would likely be on reducing the risk-free interest rate,” the RBA said.

“This would involve reducing the cash rate to a very low level and possibly purchasing government securities to lower the risk-free rate further out along the term spectrum.”


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