(Bloomberg) -- Australia’s central bank hasn’t been quite as explicit as some peers in laying out which unconventional measures it might be open to if needed to address persistent economic risks. Now, some observers are mapping out options.
With net government debt at only about 21% of gross domestic product -- against 81% in the U.S. and 154% in Japan -- Australia’s sovereign debt market may lack the size to ensure an effective quantitative-easing program for the Reserve Bank of Australia.
“Buying government bonds will not provide enough stimulus,” was the conclusion of a panel discussion at a conference in Sydney Wednesday organized by Citigroup Inc. RBA asset purchases would more likely focus on top-rated residential mortgage-backed securities, senior unsecured bank debt and longer-term repurchase agreements, the panel suggested, according to a synopsis provided by Citigroup.
The RBA’s benchmark rate is now 0.75%, a level at which some of its peers began asset-purchase programs during and after the global financial crisis.
Governor Philip Lowe pushed back against the suggestion that Australia is headed for unorthodox monetary policy such as negative interest rates, speaking in Washington Thursday. In August, he also said that “it’s possible” the RBA could one day take steps to reduce longer-term borrowing costs.
Unconventional monetary policy looks like an “inevitable” reality, and one that could inflate asset prices across the board, according to the synopsis of a panel of analysts and property-market participants at the Citi Australia Investment Conference.
The panel, comprised of CoreLogic’s Tim Lawless and others, cited RBA modeling that showed a sustained rate cut of the equivalent of 1 percentage point would produce a 30% increase in housing prices.
Read here the view of one senior RBA official on the chance of higher property prices.
After a two-year slump, the Australian housing sector finally bottomed out in July. The shift has emboldened borrowers to ask for bigger home loans, and nonbanks should benefit from increased participation in such a growth market, the panel concluded.
“Offshore investors are providing liquidity to securitization markets in the search for yield, and think credit origination is tight and well collateralized,” the Citi summary said.
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