RBA buys $50b in government bonds

6 May 2020

The Reserve Bank of Australia (RBA) has said its bond purchasing program has so far totalled around $50 billion.

In light of the improving conditions in the market, the central bank said these purchases had now been “scaled back”.

However, it would be prepared to increase them again in the future if the situation required.

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Governor Philip Lowe said: “The functioning of the government bond markets has improved and the yield on three-year Australian government securities (AGS) is at target of around 25bps.

“Given these developments, the Bank has scaled back the size and frequency of bond purchases which to date have totalled around $50 billion.

“The bank is prepared to scale-up these purchases again and will do whatever is necessary to ensure bond markets remain functional and to achieve the yield target for three-year AGS.”

It said it expected the unemployment rate to peak at 10% in the next few months and remain above 7% at the end of next year. A baseline scenario was output falls of around 10% in the first half of 2020 and 6% for 2020 followed by a bounce-back of 6% in 2021. 

These expectations could be better if progress was made in containing the virus but, on the other hand, the bank said the outcomes could be “even more challenging” if lifting of the restrictions was delayed.

“A stronger economic recovery is possible if there is further substantial progress in containing the coronavirus in the near term and there is a faster return to normal economic activity,” he said.

“On the other hand, if the lifting of restrictions is delayed or the restrictions need to be reimposed or household and business confidence remains low, the outcomes would be even more challenging than those in the baseline scenario.”

Responding to the figures, Steve Miller at GSFM, said: “[These figures] strike me as relatively benign outcome compared to some of the more dire scenarios contemplating declines and recovery trajectories comparable to the Great Depression”.

Shane Oliver, chief economist at AMP Capital, said: “The extraordinary monetary and fiscal policy response seen from March won’t stop the hit to the economy from the shutdowns and a sharp rise in unemployment. But they should help minimise the fall out in terms of jobs, incomes and businesses such that we can recover more quickly once the virus is better controlled”.

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