"The threshold for undertaking QE in Australia has not been reached, and I don’t expect it to be reached in the near future."

Government bonds not corporate

In the unlikely event of engaging in quantitative easing – the process whereby the central bank buys securities to expand the money supply – the RBA would focus on government securities.

"If – and it is important to emphasise the word 'if' – the Reserve Bank were to undertake a program of quantitative easing, we would purchase

government bonds, and we would do so in the secondary market," Dr Lowe said.

"We have no appetite to undertake outright purchases of private sector assets as part of a QE program."

Dr Lowe said he was confident we were "still a fair way from "the "reversal interest rate" – where the interest becomes so low that it has a contractionary effect on the economy.

Economy nothing like Japan or Europe

Australia's financial system was not showing any signs of stress and the overall economy was nothing like Japan or other countries, where interest rates were now at 0 per cent.


"Our growth prospects are stronger, our banking system is in much better shape, our demographic profile is better and we have not had a period of deflation," Dr Lowe said.

"So there is no need to change our normal market operations to do anything unconventional here. Negative interest rates in Australia are extraordinarily unlikely. We are not in the same situation that has been faced in Europe and Japan."

However, Dr Lowe did qualify the timing of QE by saying: "If we were moving away from, rather than towards, our goals for both full employment and inflation, the purchase of government securities would be on the agenda of the [RBA] Board.

"There may come a point where QE could help promote our collective welfare, but we are not at that point and I don’t expect us to get there."

Governments should be ready

He said if Australia moved to implement QE, he hoped governments would be able to offer other stimulatory assistance for the economy.

"In this world, I would hope other public policy options were also on the country’s agenda," he said.

While acknowledging that QE can help stressed market conditions and also place downward pressure on both interest rates and the exchange rate, which is good for the economy, Dr Lowe also highlighted its limits.

Buying government bonds took away a form of collateral for financial market operations. He also pointed to projections that government debt is projected to decline relative to the size of the economy over the years ahead.

"These considerations are not impediments to undertaking QE, but we would need to take them into account."