Unconventional Monetary Policy: Some Lessons From Overseas Philip - PowerPoint PPT Presentation

26 November 2019 Australian Business Economists Dinner, Sydney Unconventional Monetary Policy: Some Lessons From Overseas Philip Lowe Governor

Central Bank Policy Rates % % 3 3 Sweden 2 2 1 1 Denmark Japan 0 0 Euro area Switzerland -1 -1 2009 2011 2013 2015 2017 2019 Sources: Central banks; Refinitiv

Central Bank Extended Liquidity Operations Per cent of GDP % % 8 8 6 6 4 4 2 2 0 0 2007 2010 2013 2016 2019 Sources: Central banks; Refinitiv

Central Bank Asset Purchases Per cent of GDP % % Private securities Agency securities Government bonds 20 20 10 10 0 0 2007 2010 2013 2016 2019 Sources: Central banks; Refinitiv

Some observations 1. Liquidity support measures in stressed markets were successful 2. Unconventional measures have had some side effects i. Changes to incentives for financial institutions and policy makers ii. Impact on bank lending and efficient allocation of resources iii. Blurring of the lines between monetary and fiscal policy 3. A package of measures works best, with clear communication

Some observations 1. Liquidity support measures in stressed markets were successful 2. Unconventional measures have had some side effects i. Changes to incentives for financial institutions and policymakers ii. Impact on bank lending and efficient allocation of resources iii. Blurring the lines between monetary and fiscal policy 3. A package of measures works best, with clear communication

Some observations 1. Liquidity support measures in stressed markets were successful 2. Unconventional measures have had some side effects i. Changes to incentives for financial institutions and policymakers ii. Impact on bank lending and efficient allocation of resources iii. Blurring the lines between monetary and fiscal policy 3. A package of measures works best, with clear communication

Implications for Australia 1. RBA has flexible market operations to ensure adequate liquidity. No need to change, since financial markets are operating normally 2. Negative interest rates are extraordinarily unlikely 3. No appetite to purchase private-sector assets in a QE program 4. If RBA were to undertake QE, would purchase government bonds

Implications for Australia 1. RBA has flexible market operations to ensure adequate liquidity. No need to change, since financial markets are operating normally 2. Negative interest rates are extraordinarily unlikely 3. No appetite to purchase private-sector assets in a QE program 4. If RBA were to undertake QE, would purchase government bonds

Implications for Australia 1. RBA has flexible market operations to ensure adequate liquidity. No need to change, since financial markets are operating normally 2. Negative interest rates are extraordinarily unlikely 3. No appetite to purchase private-sector assets in a QE program 4. If RBA were to undertake QE, would purchase government bonds

Implications for Australia 1. RBA has flexible market operations to ensure adequate liquidity. No need to change, since financial markets are operating normally 2. Negative interest rates are extraordinarily unlikely 3. No appetite to purchase private-sector assets in a QE program 4. If RBA were to undertake QE, would purchase government bonds

Australian Yield Curve % % 1.25 1.25 Australian Government Securities 1.00 1.00 0.75 0.75 Overnight Indexed Swaps 0.50 0.50 1 2 3 4 5 6 7 8 9 10 Maturity (years) Sources: Bloomberg; RBA

Implications for Australia 1. RBA has flexible market operations to ensure adequate liquidity. No need to change, since financial markets are operating normally 2. Negative interest rates are extraordinarily unlikely 3. No appetite to purchase private-sector assets in a QE program 4. If RBA were to undertake QE, would purchase government bonds 5. Threshold for undertaking QE has not been reached and is not expected to be reached

26 November 2019 Australian Business Economists Dinner, Sydney Unconventional Monetary Policy: Some Lessons From Overseas Philip Lowe Governor