Via The Australian comes ANZ mulling the end of rate cuts:
“Further support for the economy is likely to be required in 2020, given the gathering global uncertainties,” Mr Plank said.
“We think the RBA will likely reach for tools other than the cash rate, with explicit forward guidance the possible first choice,” he said.
Mr Plank said there is “considerable uncertainty” about what unorthodox options the RBA will choose, given the varying approaches that other countries have taken in recent years to pull their economies out of recession.
The example of explicit forward uidance would involve the RBA laying out a long-term path of low interest rates, giving markets and firms certainty about the period of easy money.
Mr Plank said the aim of explicit policy guidance would be to flatten the country’s yield curve and drive the dollar lower.
That won’t do shit. The RBA needs to be thinking much more creatively. The first round of QE should include buying RMBS, covered and unsecured bonds to drive down banks funding costs and mortgages.
But, there is a problem. Either APRA will still keep lending standards high meaning QE measures will have limited impact. Or, APRA will fold and excessive lending drive new asset bubbles in housing and stocks. Right along with the worsening wealth divide dogging other QE nations. Neither is a great outcome, obviously enough.
The real object of QE should be to dump the Australian dollar lower and for that you need to shock more than with just a little unconventional policy, especially since everyone else will be doing it. There is a better option, via Professor Warwick McKibbin from last year:
“If we ever got to a situation that Europe or Japan is in, I’d move straight to helicopter money,” Professor McKibbin told The Australian Financial Review.
Rather than using quantitative easing – which he says aims to lower long-term interest rates but can often hurt savers, particularly older people living off fixed incomes – he says it makes more sense to have the central bank print money for the government to spend.
“You bring down the barriers between the fiscal accounts and the monetary accounts. Therefore the government spends and puts money in the hands of people.
“It’s really a last resort measure and you need a way to rein in the inflationary pressures once they emerge.”
Helicopter money if effectively Modern Monetary Theory (MMT). This would really sink the AUD and, over time, actually lift interest rates as well via real economic activity not asset prices.
Once the RBA cuts the cash rate to 50bps, it’s a great idea.
