Phil Lowe provides more detail on the length of QE program

Christopher Joye

Coolabah Capital

In the Q&A following his excellent speech today highlighting a 3 point something NAIRU, RBA Governor Phil Lowe provided further nuance and detail around his QE program, which has been immensely successful in keeping the Aussie dollar very low and competitive, and holding public sector borrowing costs in check:

"Back in February we thought the unemployment rate today would be 6.5% - it’s 5.1% and job vacancies are at a record level. 
So we thought consistent with the framework we had articulated, the third most important consideration is progress towards our goals*-- we had made progress and if we didn’t decide to scale back when we had made such substantial progress I don’t know when we would decide to scale back. It’s a modest scaling back, and it’s reflecting the progress that we have made. 
And we are going to keep buying these bonds until we make more material progress and really what we want to see, the key thing we want to see, is evidence that the stronger growth in jobs and output is translating into stronger wages and inflation. 
So we are going to keep going until that happens. But as we get closer to those objectives – I hope you can understand that it makes sense to scale back a bit. And then by the time we get to those objectives, we will finish this .”

Based on this additional detail, Goldman Sachs have increased the size of their expected QE3 program to $130 billion, and forecast that it will continue to Q4 2022, broadly in line with Coolabah's previously published estimates. Goldman Sachs comment:

"In the Q&A, Governor Lowe hinted that by the time the QE program finishes the RBA would be ‘close to’ its objectives...In light of these comments, we now expect the QE program...[to end] in 4Q2022, when we also expect the Fed’s QE program to end. We estimate this will take total QE purchases to c.A$330bn since the start of the program in November 2020 (previously c.A$300bn).

*Note: the first two – more important – goals are “the effectiveness of the bond purchases to date and the decisions of other central banks”

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Christopher Joye
Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...

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