Goldman, JPMorgan Say RBA May Start New A$100 Billion QE
Goldman, JPMorgan Say RBA May Start New QE Worth A$100 Billion
(Bloomberg) -- The Reserve Bank of Australia may buy up to A$100 billion ($71 billion) of bonds in a renewed effort to revive the nation’s coronavirus-battered economy, according to Goldman Sachs Group Inc. and JPMorgan Chase & Co.
A new “quantity-based” easing program is likely after RBA Governor Philip Lowe said Thursday that the nation’s 10-year yields were higher than “almost everywhere in the world, according to JPMorgan. Goldman sees an 80% chance for an easing package at the central bank’s Nov. 3 meeting.
“The Governor’s speech deemphasized short-end rates, with the focus clearly on QE and how lower longer-dated bond yields would affect the economic recovery,” Tom Kennedy, senior economist at JPMorgan in Sydney, wrote in a note.
Australian bonds surged across the curve, led by the 10-year debt, after Governor Lowe questioned whether the RBA needs to buy more bonds to help spur hiring as the economy tipped into recession. While the central bank introduced yield-curve control in March, it had only targeted the three-year security.
With the three-year yield holding near the 0.25% target, there are weeks when the RBA didn’t need to buy bonds. JPMorgan said it now expects the RBA to buy A$75 billion to A$100 billion of sovereign and state bonds over a year, implying weekly average purchases of between A$1.4 billion to A$2 billion.
The RBA has bought more than A$63 billion of sovereign and semi-government debt since it started quantitative easing measures this year, central bank data show.
The 10-year yield dropped as much as nine basis points to 0.74%, the lowest since April, while the Australian dollar fell 0.5% against the greenback.
In addition to announcing an estimated A$100 billion bond-buying program, the RBA is also likely to cut interest rates next month to 0.1%, Goldman strategists including Andrew Boak wrote in a note. It could also lower its yield-curve control targets and term funding facility rates as part of further easing efforts.
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