What will RBA QE look like? UBS has a go at it:
The RBA thinks unconventional monetary policy is “unlikely”. But “If growth failed to pick up, and the unemployment rate started rising noticeably, then all arms of public policy would need to address how to combat that… in extremis, unconventional policy measures would need to be on the table.” The RBA recently outlined policies used by global central banks including: 1) very low/negative rates; 2) explicit forward guidance; 3) QE – buying Government bonds; 4) funding banks to support credit; 5) QE – buying private assets (RMBS, corporate bonds, equities); & 6) FX intervention. We would add: 7) increasing the size & tenor of Open Market Operations (OMO) to lower funding costs (repo/FX swaps/BBSW), albeit the RBA would likely see this as simply ‘extending’ OMO.
UBS think the primary aim and impact of unconventional policies (Forward guidance + QE) would lower risk free rates across the curve (seeing the curve flatten), reducing term funding costs for lenders and maximising the pass-through of cash rate cuts. Lower rates would also put downward pressure on the AUD, or at a minimum offset “unhelpful” upward pressure amid global easing. Indeed, Debelle said if the AUD “would depreciate further, that would also be helpful for the macro economic outlook, both in terms of economic growth and also inflation”.
