- Quantitative easing, or QE, is set to be implemented in Australia for the first time.
- Desperate to stimulate the economy, the RBA has flagged it will buy up government bonds to inject more money into the economy, amid the coronavirus outbreak.
- It follows the decision by the US Federal Reserve to expand its own QE program overnight by $1.13 trillion.
- Visit Business Insider Australia’s homepage for more stories.
The RBA finally did it.
After many months of speculation, the Reserve Bank of Australia (RBA) has indicated it will implement quantitative easing (QE) in Australia for the first time in the country’s history.
“As Australia’s financial system adjusts to the coronavirus (COVID-19), financial regulators and the Australian Government are working closely together to help ensure that Australia’s financial markets continue to operate effectively and that credit is available to households and businesses,” RBA Governor Phillip Lowe said in a statement on Monday.
“In response, the Reserve Bank stands ready to purchase Australian government bonds in the secondary market to support the smooth functioning of that market, which is a key pricing benchmark for the Australian financial system.”
In other words, the RBA will expand Australia’s money supply by buying up those bonds – essentially ‘printing money’ in an effort to stimulate the economy. The central bank said it would also engage in “repo operations” where it will on-sell those bonds to investors before buying them back for a slightly inflated price.
It’s an unprecedented step and one the RBA has repeatedly indicated it was prepared to unleash, even if it would rather avoid it.
For one, QE can push up asset prices, with the real risk in Australia being such a program could inflate a massive housing bubble. However, as the coronavirus outbreak threatens to cannonball global economic growth, it appears Australia’s central bank has little choice.
Its American counterpart, the US Federal Reserve, indicated overnight it would expand its own QE program to the tune of $1.13 trillion, and swiftly moved to cut US interest rates by 1%.
Closer to home, the Reserve Bank of New Zealand (RBNZ) also cut interest rates overnight, doing so by 0.75% in its own stimulus attempts.
Now the RBA is doing what little it can to try and move the dial for “as long as market conditions warrant”.
It’s expected to announce further measures on Thursday.
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