SYDNEY, Oct 15 (Reuters) - Australia's top central banker
said on Thursday monetary easing would become more effective as
the economy loosens its coronavirus restrictions, an indication
another cut to the official cash rate was likely.
Reserve Bank of Australia (RBA) Governor Philip Lowe also
said the board was studying the benefits that might come from
buying longer-dated government bonds as part of its monetary
stimulus package to boost jobs and growth.
The remarks come ahead of the RBA's Nov. 3 board meeting
where economists increasingly expect a 15 basis points cut to
the cash rate to a record low 0.1% and an expansion of an
existing bond-buying programme to include longer maturities.
Those expectations sent the Australian dollar to a
one-week low of $0.7129 on Thursday. Long-dated bond futures
rallied, with the 10-year contract jumping 6.5 ticks to
the highest since April.
"When the pandemic was at its worst and there were severe
restrictions on activity we judged that there was little to be
gained from further monetary easing," Lowe said in a speech in
"The solutions to the problems the country faced lay
elsewhere," Lowe added referring to fiscal policy, which he
said, has provided "welcome support" to the economy.
"As the economy opens up, though, it is reasonable to expect
that further monetary easing would get more traction than was
the case earlier."
Lowe emphasised that creating jobs was the RBA's "main
focus", with data on Thursday showing the unemployment rate had
ticked up to 6.9% in September.
Apart from considering the benefits of further easing when
the cash rates is already at record lows, the RBA board was also
looking at the possible effect on financial stability and
long-term macroeconomic stability.
The implications of larger balance-sheet expansion by other
central banks were another consideration as the RBA works at
potential policy options, Lowe added.
"These are three of the complex issues we have been
considering at our recent Board meetings," Lowe said. "The Board
will continue to review these and other issues at our upcoming
Lowe hinted at the possibility of an expansion of the RBA's
bond buying programme further along the yield curve.
He did not provide details but noted that 10-year Australian
government bond yields were higher than most other
advanced countries and that policymakers were looking at whether
lowering them could aid job creation.
Lowe's speech prompted economists at Commonwealth Bank of
Australia to revise their call to now predict a cut to the cash
rate next month and additional bond purchases to lower yields on
5-10 year government bonds. They previously saw 0.25% as the
lower bound of the current easing cycle.
"The Governor has made it very clear that we can expect to
see more monetary policy easing from the RBA," CBA senior
economist Kristina Clifton said. "The speech showed a sense of
urgency around reducing slack in the labour market."
(Reporting by Swati Pandey and Wayne Cole; Editing by Chris
Reese and Sam Holmes)