The plan is to let the bonds mature and rely on interest rates for policy guidance.
The Reserve Bank of Australia estimates that its programme of bond purchases reduced yields on longer term government bonds by around 30 basis points and lowered the spread on yields between government and semi-government securities by 5 to 10 basis points, according to Assistant Governor Chris Kent.
In a speech on Monday, Kent said that after acquiring almost AUD224 billion of Australian Government Securities and AUD57 billion in semi-government securities on the secondary market during the pandemic, the RBA had now entered a phase of “quantitative tightening”, See: MNI STATE OF PLAY: RBA Could Take Rates To 2.5%, Says Lowe.
“By allowing our bond holdings to gradually diminish over time as they mature, the initial stimulatory effects of those holdings – namely, downward pressure on government bond yields and the Australian dollar exchange rate – will gradually unwind,” Kent said. He said the first major maturities worth about AUD2 billion would be the July 2022 Australian government bond, followed by AUD2 billion of the November 2022 bond. Maturities will be more sizeable from 2024.
Kent said the central bank had no plans to sell bonds because interest rates remained its best policy tool. Also, the sale of bonds could complicate issuance by Australian government authorities. “Third, should a bond buying program be needed in the future to provide support to the economy, it would be likely to be more effective if sales are avoided this time around,” Kent said. “ In short, the market would probably assume ‘once a seller, always a seller’”.