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Australian central bank assessing various policy options to revive economy

Sydney

AUSTRALIA'S central bank is assessing various monetary policy options including currency market intervention and negative rates to meet its inflation and employment goals, deputy governor Guy Debelle said on Tuesday.

The Reserve Bank of Australia (RBA) had slashed interest rates to a record low 0.25 per cent in an emergency meeting in mid-March to backstop the economy from the coronavirus crisis.

It also launched an "unlimited" government bond-buying programme and a cheap funding facility for banks. It has held rates since then, saying it would maintain its "highly accommodative settings" as long as required to support the flagging economy.

"Given the outlook for inflation and employment is not consistent with the Bank's objectives over the period ahead, the Board continues to assess other policy options," Mr Debelle said in a speech titled "The Australian Economy and Monetary Policy".

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One option being considered is to buy bonds with maturities beyond three years to help lower longer-dated government bond rates, Mr Debelle said.

The RBA is currently targeting three-year yield at 0.25 per cent.

Foreign exchange intervention was another potential policy option, though Mr Debelle said it was not clear whether this would be effective given that the Australian dollar was "aligned with fundamentals".

The Aussie is up more than 3 per cent so far this year, helped by stronger prices for its top export iron ore and a better coronavirus response in the country. A sagging greenback has also helped prop up the risk-sensitive currency.

"That said, a lower exchange rate would definitely be beneficial for the Australian economy, so we are continuing to watch developments in the foreign exchange market carefully," Mr Debelle added.

A third option would be to lower the cash rate without taking it into negative territory. And, the final option was negative rates, though Mr Debelle said the empirical evidence on its success was mixed.

The RBA has previously said on multiple occasions that negative rates were "extraordinarily unlikely" in Australia though Mr Debelle did not repeat that message. REUTERS

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