MNI REVIEW: RBA Cuts, Buys Bonds, In Whatever It Takes Call

By Lachlan Colquhoun

     LONDON (MNI) - The Reserve Bank of Australia's benchmark rate is likely to

be at a record low 0.25% for around three years and "nothing is off the table"

in terms of further policy action if needed, Governor Philip Lowe said Thursday.

     Lowe would not speculate on what further measures the Bank would take,

other than saying the RBA would do "whatever is necessary" to lower funding

costs and ensure the supply of credit.

     "I feel at the moment that we've done enough, but if that turns out to be

the case then there are other measures we can consider," Lowe said.

     "We've done all we can on the cash rate, so we'll look elsewhere," he

added.

     Earlier Thursday, the RBA cut the cash rate by 25 bps for the second time

in just over two weeks, to a record low 0.25%, a level it sees as the effective

lower band.

     --BOND BUYS

     The Bank also confirmed it will begin a program of buying Australian

Government and Semi-Government bonds issued by Australian states and

territories, "right across the maturity spectrum" , targeting a yield on

benchmark three-year bond yield.

     Operationally, the bank will make an announcement every morning on days

when it plans to enter the market.

     "Purchases of Government bonds and semi-government securities across the

yield curve will be conducted to help achieve this target as well as address

market dislocations," Lowe said.

     --NOT QE

     He accepted that many people would describe the bond purchases as

quantitative easing, but underlined that the RBA emphasis was not on the

quantity and type of bonds it would buy.

     "How much we need to purchase, and when we need to enter the market, will

depend on market conditions and prices," said Lowe.

     "Rather than quantities or the size of our balance sheet, our focus is very

much on the price of money and credit."

     The RBA also announced a term funding facility for the banking system

designed to support small medium sized businesses, offering to provide a three

year A$90 billion funding facility to authorized deposit taking institutions.

     "They will have access to additional funding if they increase lending to

business, especially small and medium sized businesses," Lowe said, noting

Canberra had developed a complementary support program for the non-bank

financial sector.

     A final feature of the program is a move to remunerate exchange settlement

balances at the RBA at 10 basis points, rather than at zero as currently.

     "This will mitigate the cost to the banking system associated with the

large increase in bank's settlement balances at the Reserve Bank that will occur

following these policy options," Lowe said.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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