RBA’s Kent: Ready to buy bonds if needed to maintain 0.25% yield target

Australia's central bank is ready to buy government bonds if market conditions deteriorate significantly, or if needed to achieve its target for the 3-year yield of around 25 basis points, a senior official said on Monday, Reuters reports.

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The Reserve Bank of Australia (RBA) had slashed interest rates to an all-time low of 0.25% and launched an "unlimited" bond buying programme in an emergency meeting in mid-March to battle the coronavirus crisis. 

Since late April, the RBA has scaled back purchases significantly and has not needed to buy any bonds for some time, Assistant Governor Chris Kent said in a speech.

Kent was speaking at a Kanga News webinar on the topic "The Reserve Bank's Operations – Liquidity, Market Function And Funding."

Among other RBA operations, Kent said the Term Funding Facility (TFF) has not found much favour at this stage with the take up currently around A$26 billion, or 17% of the total on offer.

Through the TFF, the RBA provides a guaranteed source of funding to banks for three years at 25 basis points, with an incentive to increase lending to businesses, especially small- and medium-sized enterprises.

One of the reasons for the low take-up, Kent said, was that many banks have accessed even cheaper funding from other sources in recent months, albeit at shorter tenors than three years such as bank bills.

Secondly, bank deposits have grown, and an increasing share of deposits have been paying rates below 25 basis points.

"Also, the TFF provides funding for three years from the date of the drawdown, so the longer (a bank) waits to draw funds, the later they will have to repay the money," Kent noted.

"With no pressing funding need right now, and ample alternative short-term funding at low cost, delaying the drawdown is a useful option."