Summary

  • Addressing the FX Week Australia 2020 event, RBA Deputy Governor applauded the central banks and governments’ swift action against the COVID-19 crisis.
  • Reserve Bank Deputy highlighted that the FX industry effectively dealt with operational challenges presented by the COVID-19 lockdowns.
  • The Deputy Governor steered clear of discussing monetary policy while speaking at the foreign exchange conference.

Speaking at FX Week Australia 2020, the RBA Deputy Governor Guy Debelle applauded the central banks and governments’ swift action against the COVID-19 crisis. Mr Debelle hailed the quick recovery in market conditions after sharp deterioration, backed by policymakers’ unprecedented support.

While speaking on the ‘Global Foreign Exchange Committee and the FX Global Code’, the Deputy Governor emphasised that the market conditions have continued to strengthen in the recent months. He underlined that liquidity is now nearing more normal levels, while the depth of market rests noticeably below pre-COVID-19 levels.

Reserve Bank Deputy Hails FX Market’s Response to COVID Challenges

Reserve Bank Deputy highlighted that COVID-19 lockdowns presented major operational challenges to the foreign exchange (FX) market participants. However, the FX industry effectively dealt with these challenges.

Reviewing the experiences of both buy and sell-side market participants, Mr Debelle outlined that electronic trading proved reliable and effective during the virus crisis. He stressed that the COVID-19 period fostered the FX industry's swing towards electronic trading. This comprises the larger use of execution algorithms in several markets.

He further emphasised that the abrupt change in market conditions during COVID-19 accentuated the importance of transparency. As the ‘last look’ rejection rates increased, trade sizes reduced, and spreads widened. He added that clients needed to realise the implications of these changes on their activities.

Deputy Governor Sidesteps Monetary Policy Discussion

Mr Debelle’s speech at FX Week Australia 2020 focussed on the conditions in the FX markets, operation of FX markets and the review of the FX Global Code. The Deputy Governor steered clear of discussing monetary policy while speaking at the foreign exchange conference.

His speech surfaced at a time when the market is speculating a reduction in the interest rate to 0.1% during the next month RBA meet. Recently, economists at Westpac Banking Group Limited (ASX:WBC) and National Australia Bank Limited (ASX:NAB) projected an imminent rate cut by the central bank to stimulate economic recovery.

Last month, Mr Guy Debelle also sketched four possible options the RBA has at its disposal for additional monetary policy support:

  • Extending the bond-buying program to longer maturities and beyond three years
  • Foreign exchange intervention
  • Lowering the current structure of rates without slipping into negative territory
  • Negative Interest Rates

The RBA Deputy Governor also sparked a debate around negative interest rates in September, when he did not completely rule out the possibility of the same. However, the RBA Governor Mr Philip Lowe, has frequently discarded the intention of taking the interest rate into negative territory.

Must Read: All that you need to know about RBA's toolkit

The central bank vacated the stage for the federal budget in its October monetary policy meeting, keeping cash rate unchanged at 0.25%. However, another rate cut seems to be on the table to stimulate employment growth and the nation’s recovery from the COVID-19 crisis.

 

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