Working Papers

Government Shows the Irrelevance of AussieMac

Treasurer Swan has announced that:

To reinvigorate the Australian RMBS market and support competition in mortgage lending, I will direct the AOFM to invest in AAA rated RMBS in two initial tranches of $2 billion each.

The government’s intervention in the RMBS market shows that we don’t need a GSE to support market liquidity.  Both the RBA and AOFM can perform this function, if deemed necessary.

I doubt an intervention of this size will do much to ease liquidity premia or see much pass through to retail mortgage interest rates.  But even allowing for some small pass through, all the government has done is marginally weaken the case for further reductions in the official cash rate by the RBA.  Whatever the AOFM giveth, the RBA will surely taketh away.

posted on 26 September 2008 by skirchner in Economics, Financial Markets

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