Unconventional monetary policy possible but unlikely in Australia - RBA's Kent
* Unconventional policies unlikely, yet possible in
* Monetary policy transmission working in the usual way
* Lower Aussie dollar helping economy
(Recasts lead, adds comment from RBA assistant gov in par
4,5,7, updates A$ level in par 11, adds bullets)
By Swati Pandey
SYDNEY, Aug 13 (Reuters) - Australia won't rule out
unconventional monetary policy to revive its economy, but a
senior central banker said on Tuesday that such a prospect was
unlikely as the recent rate cuts are expected to support growth.
The Reserve Bank of Australia (RBA) reduced its benchmark
cash rate to 1% following back-to-back easings in June and July.
It has since pledged to keep rates low for longer, sending
yields across the bond curve tumbling to depths not seen before.
New Zealand's central bank took a radical stance last week
by cutting interest rates a steep 50 basis points and even
flagging the risk of going nuclear by taking rates below zero.
"I think the need for such policies here is unlikely but
certainly possible," said RBA's Assistant Governor Christopher
Kent, responding to questions around the possibility of negative
interest rates or quantitative easing in Australia.
Financial markets are pricing in two more RBA cuts
with the cash rate seen at 0.5% by early next year.
"What we've been doing is studying overseas experience, a
prudent thing for us to do," Kent said in a speech in Sydney,
echoing RBA chief Philip Lowe who on Friday laid out the
scenarios in which the bank might drag interest rates to zero.
Policymakers around the world are struggling with lukewarm
inflation and tepid wage growth even as unemployment rates in
many developed economies have fallen to record lows. The
Sino-U.S. trade war has further complicated matters by raising
fears of a world recession, prompting financial markets to price
in aggressive easing by the U.S. Federal Reserve.
Since the global financial crisis, the Fed, the European
Central Bank, the Bank of England and the Bank of Japan have all
used quantitative easing - essentially, a money-printing
campaign to boost liquidity across the banking system and broad
"One of the lessons we have taken is that not all of those
(unconventional) policies are appropriate for Australia. It
depends very much on the circumstances you are in," Kent said.
Attempting to allay concerns about the effectiveness of
monetary policy as interest rates approach zero, Kent said the
policy transmission was "working in the usual way".
He noted that the easier stance of monetary policy in
Australia has led to a decline in the cost of funding in
corporate bond markets and for banks while supporting equity
In addition, "the decline in interest rates in Australia has
contributed to the depreciation of the Australian dollar," the
assistant governor said.
The Aussie was last trading at $0.6758, having
dived to a decade low of $0.66775 just last week.
"That broad-based easing in financial conditions in
Australia will provide some additional support to demand in the
period ahead," Kent added.
(Reporting by Swati Pandey, editing by G Crosse & Shri
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