Capital Economics: RBA to cut to -50bps

Via Capital Economics chief economist Marcel Thieliant:

Mr Thielant’s central scenario is that cutting interest rates to 0.5 per cent will be sufficient to restore growth and eventually return underlying inflation to the RBA’s target but if more stimulus were required, he says he is concerned that the government would probably remain reluctant to loosen fiscal policy, leaving the onus on monetary policy to support the economy.

“The RBA would probably cut the cash rate to 0.25 per cent and launch quantitative easing to lower longer-term borrowing costs,” he says.

“And if that doesn’t boost demand and inflation enough, the Bank would probably cut rates into negative territory, perhaps to -0.5 per cent.”

He says the experience from other countries that have launched unconventional policy tools is that conditions need to be quite grim before central banks do QE.

It could but I doubt it would. It’s too radical for the radically conservative RBA.

Comments

  1. reusachtigeMEMBER

    This is a good idea because only Lower teh interest rates, that will fix thing.

    • “The RBA would probably cut the cash rate to 0.25 per cent and launch quantitative easing to lower longer-term borrowing costs,” he says.

      Pfft, quantitive easing will just help those who own stocks and assets already, it will do nothing for the working majority with very little to their names.

      Much better to give out $20k cheques to each Tom,Dick,Harry and Sally and let them spend it in the wider economy or help pay down their debts.. That would fix thing, for a short while anyway..

      • QE was always meant to help 1% to herd more profits to Cayman Island – but was sold to the masses as if was meant to help them somehow. Has it worked anywhere?? Only those with money benefited – as to your point.
        Even if Gov give us $20k each, as we don’t produce anything we will only stimulate Chinese manufacturers and perhaps help Mayer stay open for another 6 months.

      • pyjamasbeforechristMEMBER

        I suspect more and more that helecopter money to the masses is the play book. But it will be the US, UK, EU, Japan, Australia and anyone else that wants to join in giving out $50k cheques all at the same time to limit the currency flows. Hell China might even join in.

        If this was the known playbook at the central bank level then going to zero bound looks a lot less worrying.

  2. This is crazy, lower interet rates lead to higher asset prices Shares property etc. and of course increase debt, debt is consumption brought forward. The low interest rates have crucified savers, how is anybody going to self fund a retirement?? – Perhaps we could follow Denmark where you actually get paid to take out a mortgage (https://www.youtube.com/watch?v=ZjCSyFQCtPk) If you have a big enough mortgage you might be able to live of the payments CRAZY CRAZY CRAZY!!!! – All this to stave of a cleansing recession, Ludwig Von Misus must be pissing himself with laughter –

    • proofreadersMEMBER

      Nah – Captain Glenn’s legacy was to to help blow the mother of all housing price bubbles and Captain Phil needs to start working on his: getting Straya in to negative interest rate territory, launching QE and blowing a stock and housing price bubble to die for.

  3. QE will not only not work, it would be counter productive.

    There’s no credit funding issue anymore so no need to infect liquidity into the money market. Spreads from OIS to BBSW are fine now.

    Purchase of bonds in the secondary market would do nothing to assist borrowers because everyone borrows short dates so only the government and States would benefit and they aren’t going to increase spending because they can issue paper 25bp lower funding cost. And while lower bond yields may support non-bank equities, the big weighting of financial institutions in the ASX would offset wealth effects. And QE wouldn’t necessarily weaken the A$ by much at all.

    They can cut rates, they can sell the A$ – although this is more-or-less off limits due to G-20 obligations – and they can fund fiscal spending directly. Not much else they can do…

    • Jumping jack flash

      Exactly.

      The last couple of rate cuts had nothing to do with stimulus, 0.5% will do very little to enable people to take on the quantities of debt that is required to borrow our way to prosperity.

      My belief is they were forced to cut due to the US to keep the dollar stable (low), and passed it off as being required for creating jobs and increasing wages and inflation. The thought that cutting the cash rate can do this is preposterous, especially since cutting it has never been able to do that anywhere else, nor here in the past few years of maximum debt saturation.

  4. Jumping jack flash

    Bah!
    No need for QE here. The super Australian economy is far better than any of those povo overseas economies… We’re still at 1% cash rate here too. So there.

    With 1% left on the cash rate we will be easily able to magick up another 10 trillion debt dollars to dole out to everyone over the next 10 years so we can get back to the boom times of the early 00’s.

    We’ll simply import as many people without debt as we need to get it done… well, that’s the plan anyway.

    It hasn’t worked yet, and it hasn’t worked anywhere. All the imported people were simply used as slaves so the people with debt could add a little bit more to their piles.
    But any minute now, because of those couple of 0.25% cuts to the cash rate, everyone including the slaves will get payrises and be able to take on enormous mountains of debt to save the economy!

    Any moment..

  5. So we’ve taken out the previous “emergency level” interest rate, though nobody seems keen to use that terminology now. Of course when we get to the point where the cut is from .50 to .25, they’ll be cutting rates in half. Which sounds huge except that few (hopefully) will be stupid enough to take on the sort of debt pile that rates of that level would theoretically enable.

    This is yet another case of the increasingly common practice of supposedly intelligent people in charge being paid enormous sums of money while doing incredibly dumb things, with the rest of us looking on in disbelief.

    Geniuses.