Let us check the situation in Australia. Ian Harper is a member of the central bank’s policy-setting board. He told the Wall Street Journal that the Reserve Bank of Australia has scope to ease monetary policy settings further if it wants. Any suggestions that its firepower has run out can be dismissed.
He said that the Reserve Bank certainly could do some more if the board judges say that it is appropriate. Furthermore, he added that the idea that the bank has run out of ammunition is false.
Mr. Harper was not speaking on behalf of the Reserve Bank of Australia. He said that it is true that there is little scope to lower the official cash rate further from its current record low of 0.25%. The option of negative interest rates is highly unlikely. Nevertheless, the Reserve Bank of Australia has the chance of quantitative easing.
Also, Mr. Harper works at Melbourne Business School. He is dean there. So, Harper said that the bank could purchase more government securities at different points on the yield curve. It has the capacity to do more to manage the yield curve than it has currently done. Also, it can make more commitment and noise to the outlook for interest rates.
Situation in Australia
Mr. Harper added that the Reserve Bank of Australia could ramp up buying of government bonds almost indefinitely, as a different weapon.
On Tuesday, the Reserve Bank of Australia will have a monthly policy meeting. Thus, the comments came ahead of that meeting. Markets bet that Governor Philip Lowe will announce several measures to stimulate the economy further. Furthermore, among actions, there will be QE targeting lower five-year and 10-year government bond yields.
Moreover, Australian stocks are not doing particularly useful.
Now there is the absence of a concreted QE program in Australia. Thus, the Reserve Bank of Australia is worrying that government bond yields will rise above their global counterparts. It will put pressure on the Aussie. Thus, it will have the potential to slow economic recovery.
Mr. Harper’s predecessor on the Reserve Bank of Australia board was economist John Edwards. Last week, he talked with the Wall Street Journal. He said that QE was an obvious choice for the CB and that it would directly benefit the recovery.
In the second quarter, gross domestic product growth was cratered by seven percent. After that, the economy shows signs of recovery. Mr. Harper said that further easing policy reins will be to spur business activity and gain traction.