RBA's Debelle: RBA is assessing currency market intervention – Reuters

  • RBAs Debelle says foreign exchange intervention is another policy option.
  • RBA's Debelle says a lower exchange rate would definitely be beneficial for the Australian economy.
  • AUD/USD slammed by 0.4% on dovish comments from the RBA.

Seeking a lower AUD, Deputy Governor Guy Debelle said on Tuesday that Australia's central bank is assessing various monetary policy options including currency market intervention and negative rates to meet its inflation and employment goals.

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,

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

Debelle said in a speech titled 'The Australian Economy and Monetary Policy'.

FX intervention

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

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,

Debelle added.

Reuters reports that a third option would be to lower the cash rate without taking it into negative territory.

Negative rates success is mixed

And, the final option was negative rates, as Reuters reported, but explained that 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 Debelle did not repeat that message.

Market implications

The Aussie was slammed on the remarks by 0.4%.

The sentiment will have negative implications for the following analysis:

But if the market considers this as an empty threat and more of a jaw boing exercise, then there will not likely be a long lasting material impact on the currency for the time being. 

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