The RBA is very likely going to run out of cash rate easing options over the next year, with the final four cuts taking us to 50bps and the effective “zero bound” for the cash rate. So what will the RBA do next?
It has already discussed quantitative easing without being specific. Given government bonds are in short supply in Australia, with yields already at 100 year lows, the RBA will have to look elsewhere if it is embark on unconventional stimulus.
It won’t be able to lower deposit rates any further, which constitute about 60% of bank funding nor therefore mortgages rates, at least not without crushing bank margins.
