Three options for the RBA’s bond purchase program

  • By Zilla Efrat

Reserve Bank Governor Philip Lowe outlined three options on the future of the RBA’s bond purchase program to be considered at its board’s next meeting in February.

Addressing the CPA Australia Riverina Forum in Wagga Wagga yesterday, he said the RBA board had a preliminary discussion of the three options at its meeting last week, all based on the premise that the economy does not experience another serious setback.

The first option discussed was to further taper the bond purchases from the current rate of $4 billion a week, with an expectation that the purchases would come to an end in May.

The second was to taper further and then review the situation again in May.

The third option was to cease bond purchases altogether in February.

In deciding between these options, Lowe said the RBA board would use the same three criteria that it has used since the outset: the actions of other central banks, how the Australian bond market is functioning, and most importantly, the actual and expected progress towards the goals of full employment and inflation consistent with the target.

“We have made no decision yet,” he said. “Much will depend upon the news we receive between now and when we meet in February.”

Lowe said the first option – to reduce the pace of purchases from mid-February with an expectation of a likely end point in May – is broadly consistent with the RBA's forecasts in November for employment and inflation.

If better-than-expected progress towards the board's goals was made, then the case to cease bond purchases in February would be stronger, he said.

Alternatively, if progress was slower than expected, or if the outlook became more uncertain, the case for retaining flexibility and reviewing again in May would be stronger.