Bronwyn McCredie

An Examination of the Differential Impact of Monetary Policy Announcements and Explanatory Minutes Releases on the Australian Interest Rate Futures Market

Unlike US and European jurisdictions, Australian monetary policy announcements are not followed promptly by projections materials or statements that explain the decision process. This information is disclosed two weeks later when the explanatory minutes of the Reserve Bank board meeting are released. This paper is therefore the first study to exploit the unique features of the Australian monetary policy environment in order to examine the differential impact of monetary policy announcements and explanatory statements on the Australian interest rate futures market. We find that both monetary policy announcements and explanatory minutes releases have a significant impact on the returns and volatility of Australian interest rate futures contracts. When this impact is differentiated, the informational content of explanatory minutes releases is shown to elicit a larger response in returns. Further, the impact of monetary policy announcements is demonstrated to be affected by conditioning on the state of the economy. Specifically, returns respond asymmetrically to interest rate changes, intensify during the Global Financial Crisis, and are moderated by sentiment.

An Analysis of the Australian Foreign Exchange Market Response to Monetary Policy Announcements and Explanatory Minute Releases

In US and European jurisdictions, monetary policy announcements that set a target interest rate for overnight loans are followed promptly by projections materials or statements that explain the deliberation process. In Australia however, these releases are made separately with the announcement of the monthly target interbank cash rate for overnight loans being provided two weeks before the release of the minutes of the Reserve Bank board meeting that explicate the rate outcome. This study exploits this unique feature of the Australian monetary policy environment in order to examine the differential impact of monetary policy announcements and explanatory minute releases on the Australian foreign exchange market. Our results indicate that unexpected monetary policy announcements and explanatory minute releases have a significant impact on the Australian foreign exchange market. When this impact is differentiated, the informational content of an explanatory minutes release is shown to elicit a larger response. Further, conditioning on the state of the economy shows that returns following unexpected monetary policy announcements (explanatory minute releases) intensify (wane) during the Global Financial Crisis and are influenced by sentiment.