Why Central Banks Down Under Are Moving Closer to QE: QuickTake

Australia and New Zealand’s central banks are having to ponder the once unthinkable: undertaking the types of extreme monetary policies that were spawned elsewhere by the 2008 global financial crisis. Bond-purchase programs and negative interest rates were long seen Down Under as meant for countries that had gorged on risky derivatives and been reckless with debt. But with very little conventional ammunition remaining and a coronavirus pandemic weighing on the world economy, the prospect of having to use unconventional policies is suddenly a lot greater than it was.

The Reserve Bank of Australia and the Reserve Bank of New Zealand began to talk more soberly and thoughtfully about unconventional policy last year, amid China’s slowing economy and its trade fight with the U.S. That suggested Australia and New Zealand might need to find extra monetary stimulus, having cut rates to levels the Federal Reserve and Bank of England were at when they turned to asset purchases -- known as quantitative easing, or QE -- to support their economies following the financial crisis. The RBA and RBNZ both acknowledged their limited rate firepower, particularly if they need to respond to an external shock. With that in mind, RBA Governor Philip Lowe and his New Zealand counterpart Adrian Orr said it was prudent to discuss unconventional options. At that stage, a shock in the form of a health crisis had hardly occurred to anyone.