RBA boss pulls out the bazooka

‘There are no limits on what we can buy or how much we can buy’ the RBA governor said

Reserve Bank of Australia Governor Philip Lowe speaks to the media in Sydney on Thursday. Picture: AAP

“We are clearly living in extraordinary and challenging times,” Philip Lowe said, although it was hard at times to hear his voice coming down the line.

For the first time, the Reserve Bank governor was delivering a speech by teleconference. Only one cameraman and one photographer were allowed in the room with Dr Lowe as he unveiled the most ambitious economic rescue plan in Australian history, and the snapper was snapping furiously as he spoke.

“No journalists,” the RBA communications officer had told the media ahead of time.

“I’ve decided this is the best way to go. You can’t be too cautious in such unusual times.”

History books are being redrafted as we speak. Rule books are being thrown out.

If the financial crisis sparked by the coronavirus is unprecedented in its ferocity, going by the reaction of markets, then the response by central banks already dwarfs that of the global financial crisis, going by the reaction of policymakers. For central bankers, attempting to stem the economic collapse hasn’t been like trying to catch a falling knife — it’s like trying to stop one that’s been shot out of a cannon.

That’s why the US Federal Reserve, the European Central Bank, and now the RBA are pulling out the monetary policy “bazookas”.

In relatively less extraordinary times, central bank bond buying programs came with a price target, well into the hundreds of billions of dollars. For the Reserve Bank, that was not enough.

“We are prepared to transact in whatever quantities are necessary to achieve this objective,” Lowe said. “There are no limits on what we can buy or how much we can buy.”

As the crisis continues to confound expectations, there has been an unprecedented level of co-operation between international regulators attempting to stop the spread of COVID-19 and keep the global economy from stalling.

On the ground in Australia, sleep schedules have been forgotten, and the Treasurer, his department, the Reserve Bank and the corporate and prudential watchdogs are fighting as one.

Within the space of an hour, the RBA unveiled a $90bn lending program, a new low for the official cash rate, the first unconventional monetary policy program in Australian history and a plan to pump billions of dollars into the inter-bank lending market.

At the same time, the Prime Minister closed the country to foreign nationals, the Treasurer announced a $15bn rescue for securitisation markets and the prudential watchdog gave banks a free pass to cash in their “unquestionably strong” capital buffers to keep lending books open.

“I thought it was appropriate to wait until the Prime Minister and the Treasurer finished speaking,” Lowe said before starting his own teleconferenced speech.

Reserve Bank of Australia Governor Philip Lowe speaks to the media in Sydney on Thursday. Picture: AAP

It was only the second time in history the RBA cut the cash rate at an emergency meeting — the first unscheduled meeting since the 1997 Asian financial crisis.

While the full RBA board was at the Wednesday meeting, for the first time several members dialled in via video conference.

After deciding on the action plan, the RBA took the unusual step of not making an immediate announcement of its decision.

“We wanted to co-ordinate with the government, with APRA and the AOFM,” Lowe said. “There is nothing untoward there. We co-ordinated with our arms of policy and then we made the announcement.”

When asked whether authorities locally and abroad were co-operating enough or whether he would have liked to see more liaison, Lowe could only laugh.

“I wouldn’t have liked to have seen more,” he said. “I’m on late night conference calls, many nights a week, and my other colleague particularly with the authorities in the US.”

There, in the US, in the deepest capital markets in the world, something is wrong.

“A major issue there is the dysfunction in the US treasuries market,” Lowe said, referring to the worrying signal sent by markets where both safe-haven government bonds and risky equities are being dumped by investors.

“There is widespread liquidation of position around the world. There is something global going on here. Investors are very nervous about the future.”

As supply chains buckle and government’s embark on the biggest economic rescue since the end of World War II, some are so nervous about the system they are predicting the end of it.

In a series of notes sent to clients, Macquarie Wealth Management, the broking arm of the beating heart of Australian capitalism, Macquarie Group, warned that “conventional capitalism is dying” and the world was headed for “something that will be closer to a version of communism”.

It may then be appropriate then to revisit something Vladimir Lenin was fond of saying: “There are decades where nothing happens; and there are weeks where decades happen.”

The diary for the RBA governor must feel the same. After hashing out the stimulus plan with the government, the banking sector and other regulators over the last week, on Friday the Council of Financial Regulators will be holding their regular quarterly meeting and the RBA will be talking further with lenders about additional measures to aid the economy.

“I’ve been impressed with how we are pulling together,” Lowe said. “We co-operate effectively and we’re going to get through this — don’t panic, we will get through this — You want to be there on the other side when things are improving, because they will.”