Capital Economics: RBA to cut to -50bps

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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.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.