RBA Exploring Negative Interest Rates?
Arslan Butt • 1 min read
As the ongoing coronavirus crisis continues to take a toll on the economy, the Reserve Bank of Australia (RBA) is exploring available monetary policy tools such as intervention in currency markets and even negative interes rates. The RBA is looking into more ways to support the Australian economy and support inflation and employment levels in the country, according to Deputy Governor Guy Debelle.
Debelle made these comments during a speech earlier today, adding, “Given the outlook for inflation and employment is not consistent with the Bank’s objectives over the period ahead, the Board continues to assess other policy options.”
The RBA is considering buying bonds with maturity periods longer than three years. With the AUD having appreciated by more than 3% so far this year due to a weakness in the USD and higher prices for its iron ore exports, forex intervention as an option may not offer much support to the ailing economy. Other tools include cutting interest rates further, possibly into negative territory as well.
During the initial stages of the pandemic back in March, the RBA had brought down interest rates to 0.25%, started an “unlimited” bond purchase program and offered cheap funding facility for banks. The RBA continues to hold interest rates at record low levels, and has maintained that it will remain dovish for as long as the economy needs to recover to pre-pandemic levels.