RBA says ready to buy govt bonds if needed

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

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

The central bank has scaled back purchases significantly since late April and has not needed to buy any bonds for some time, Assistant Governor (Financial Markets) Chris Kent said in a speech on Monday.

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

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

Mr Kent attributed the low take-up to many banks having access to even cheaper funding from other sources in recent months.

Bank deposits have also grown, and an increasing share of deposits have been paying rates below 25 basis points, he said.

Mr Kent also noted that new monetary policy measures would come at a cost and are not under consideration at the moment. Responding to questions, he also reiterated that negative interest rates were not an option for the country.