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MNI POLICY: RBA Shifts QE Thinking Following BOE Example

(MNI) Melbourne

The Reserve Bank of Australia plans a fresh comprehensive review of its past use of additional monetary policy tools some time after mid-2024 and will weigh the Bank of England’s October 2022 market intervention as it assesses the suitability of future bond-buying operations aimed at financial stability, MNI understands.

Though many inside the RBA view QE to have been ineffective and costly, officials see a new consensus among central banks that bond buying to restore market calm is a critical function of the monetary system. While purchases would not be made every time a dealer gets into trouble, central banks are likely to act to restore stability within critical markets when needed, for example if banking liquidity hits critical levels, with the BOE’s experience from last year set to be highlighted in a review likely to begin after the RBA’s Term Funding Facility fully matures next June 30.

The Reserve bought about AUD300 billion in Australian government commonwealth bonds, or about 35% of total outstanding paper, after abandoning a yield target for three-year ACGBs in November 2021. The yield target had been introduced to support the economy during the pandemic, together with offering major banks low-cost funding via the TFF.


The RBA Review, which released findings early in the year, called for a fresh external examination of the use of additional monetary policy tools, noting the Board had lacked key cost-benefit analysis and expertise.

The RBA has already conducted one review into its 2020 bond-buying programme, published last year, which recommended that future operations target the shorter end of the curve, which provides much of the funding of Australian banks. The RBA should also carefully assess the financial cost "at the outset and as the circumstances evolved," it said, noting that the BOE had secured a government indemnity for its operations.

The bank recorded a AUD12.4 billion net-equity loss in its last annual report (see chart) and the Reserve does not expect to pay a dividend for some years.

The Board was expected to discuss selling its bond holdings at its Oct 3 meeting, for which minutes will be published on Oct 17, though as MNI has previously reported the RBA is likely to hold the securities until maturity. (See MNI POLICY: Any RBA QT Sales To Be Gradual And Slow)

Daniel covers the Reserve Bank of Australia and the Reserve Bank of New Zealand and leads the Asia-Pacific team.
Daniel covers the Reserve Bank of Australia and the Reserve Bank of New Zealand and leads the Asia-Pacific team.

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