Lowe’s watershed speech
The 2021 Anika speech was used to deliver three key messages to the market: 1/ The outlook for QE is further tapering. 2/ They need CPI near 2.5% before hiking. 3/ The market is wrong in pricing rate hikes in 2022 & 2023.
Tag: QE
The RBA’s other taper
A recent bias to shorter bonds means that the risk (DV01) extracted by the RBA’s buybacks has declined. Combined with the tapering of the amount, this lowers risk extracted by about 30% per week.
RBA puts it into neutral with 4+4
The RBA today made November’s decision and pre-committed to buying at a 4bn pace until at least February 2022. The
Sep RBA preview
The RBA meets on 7 Sep. The data was strong in Q2, but the outlook is dimmer due to Delta. Bond market capacity makes faster QE unlikely. The most likely outcome is to pre-commit to buy at 4bn per week until at least Feb’22.
How to fix RBA QE
The RBA can push back the constraints on their Bond Purchase Program by buying beyond May’32 and buying more Semis. Doing both would create scope to ease policy by accelerating QE, if that was required.
Three problems with RBA QE
There are three main problems with RBA QE: The RBA owns too large a share of the lines it does buy. The tenor of the bonds they buy is shortening. And Semis want to issue longer than the RBA buys to fund infrastructure.
How much is enough? (for the RBA to act in Sep)
The lockdown situation is twice as bad as the RBA had in their August SOMP. Using Gov Lowe’s rule of thumb that consumption falls 15%, a Q3’21 GDP forecast of around -3% seems plausible (v. RBA -1% in the Q3 SOMP). The probability that the taper is dropped in Sep is rising.
From expansion back to recovery?
COVID lockdowns have over-taken the RBA’s recent upgrade of the current assessment from ‘recovery’ to ‘expansion’. A contraction in Q3 would extend the life of QE and boost the peak-size of the RBA’s balance sheet.
How QE works …
The BIS has just published a paper which traces the main path through which QE works to stimulate the economy.
Fed Wrestles market
Following last week’s tapering debacle, the fed has been putting out all the feelers on tapering. I expected to hear
This time is different — BoJ edition
The BoJ has obtained a larger than usual move in the JPY in response to last week’s new easing policy
Would a failed JGB buyback matter?
The Japanese Business paper Nikkei reports that the Bank of Japan will kick off their easing campaign with Y1.2tn of
ricardian ambivalence 