Bill Evans: MOAR RBA QE coming

Via Bill Evans at Westpac:

The Reserve Bank Board’s minutes for its December meeting emphasised that the Board is committed to substantial policy support for a considerable period.

The Minutes note that “Substantial policy support would therefore be required for a considerable period”.

Despite recent encouraging economic developments around the distribution of vaccines in both the US and UK and what the minutes refer to as “the recovery in the labour market was more advanced than expected” there remains significant caution with respect to the Board’s confidence in the recovery –“the unemployment rate had ticked up in recent months and broader measures of labour underutilisation remained high” – “there was still a significant amount of spare capacity in the labour market and this would remain a key policy challenge for some time”.

Overall, the sentiment from the Board is broadly unchanged, “the recovery was still expected to be uneven and protracted”.

A second outstanding theme in the minutes is the view on the housing market. The domestic housing market was described as “improving but uneven” and it was pointed out that “national housing prices had increased only a little since the outbreak of the pandemic”.

The decline in overseas migration had impacted the rental housing market with rents falling and “rental vacancy rates in inner city Sydney and Melbourne around their highest levels in many years”. There is some speculation that the authorities may see the need to slow the housing market in 2021 with some form of macro prudential policies.

Our view is that these record low rates will eventually move house prices to levels that will concern the authorities (particularly if confidence returns and the significant lift in new lending is not offset by rising repayments resulting in elevated levels of household debt) but that will be a story for 2023.

Conclusion

Yesterday we released our forecasts for the RBA’s approach to Quantitative Easing.

We expect that the current $100 billion program will be extended into a second $100 billion program before being reduced to two consecutive $50 billion programs that will see the policy covering both 2021 and 2022.

In fact, this coverage will fall a little short of the end 2022 date.

The current program which began on November 5 is described by the RBA as “approximately six months” would expire in late April/early May 2021.

We expect that will be immediately replaced by a second program of equal size and length taking the program to late October/early November 2021.

That program is expected to be replaced by a smaller, $50 billion, program of “approximately six months” to Late April/early May 2022; and finally, a fourth program to late October/early November 2022.

Two years of QE is unlikely to be currently priced into the curve but the approach set out in the December Minutes – “substantial policy support; considerable period”; “protracted recovery” all indicate that the RBA is certainly contemplating further QE.

In particular we are likely to hear more early in the new year as indicated by the Minutes, “Members agreed to keep the size of the bond purchase program under review”.

David Llewellyn-Smith
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Comments

  1. Baby you’re all that I want
    When you’re lyin’ here in my arms
    I’m findin’ it hard to believe
    We’re with Evans

  2. “.. “Substantial policy support would therefore be required for a considerable period”.

    At some point it would be nice if just a few would question what the heavens we are doing handing over control of the economy to an unelected bunch of self selecting pointy heads.

    It would be refreshing if all those true believers in economic rationalism and market economics would explain how their “free market” beliefs are consistent with:

    1. Giving private banks a monopoly over electronic liabilities of the public central bank.

    2. Having the RBA seek to manipulate the price at which the private banks lend those liabilities to each other

    3. Having the RBA buy up bonds issued by state governments when those state governments are perfectly capable of persuading their citizens to invest in their spending programs.

    4. Having the RBA manipulate the price of financial assets

    5. Having the RBA manipulate the price of residential housing assets.

    What on earth is so difficult about allowing the general public and non-banks the freedom to operate accounts at the RBA?

    They will be still free to use the private banks if they choose but they would not need to deal with a bank to settle a basic transaction with another RBA account holder.

    Force the banks to actually compete for unsecured investors (aka depositors).

    The blind spot of free market types when it comes to the central bank / private bank cartel is incredible.

    • Billy knows which side his bread’s buttered…….it’s both sides.

      Meanwhile…
      ‘Neobank Xinja has announced it will close all bank accounts, refund customer savings and hand back its banking licence after what has been a challenging year for the company.

      The fintech will now give customers seven days notice before closing all high interest Stash accounts, after it banned new customers from joining in March. Accounts will no longer earn interest effective immediately, and cards and payment facilities will be terminated from January 15.

      Xinja has blamed COVID-19 and a tough capital raising environment for the decision to exit banking, and said it will refocus the business on its US share trading platform “should circumstances allow”.

      https://www.smh.com.au/business/banking-and-finance/neobank-xinja-to-close-accounts-return-banking-licence-20201216-p56nw3.html

      Tough capital raising environment? Are they taking the p1ss??

      • Just goes to show how bad this low interest environment is and yeah there’s not much printed stimulus looking for a home ..”much” /sarc

    • Hernando da Silva

      unelected bunch of self selecting pointy heads

      This they are not. They are mostly LNP donors and big Australia big-wigs. Most of them own large investment property portfolios. Expect the RBA board members to look after #1

      • Yes – that is correct with regard to the Board Members. I had in mind the way the RBA fills most of its senior positions internally, thereby ensuring that only those who have demonstrated complete devotion to organisational “group think” are in senior positions.

        Is it any wonder that the RBA is a complete non-event when it comes to original thinking.

        The ONLY innovation the RBA is interested in are things that enhance the dominance and power of the private banks.

        Opening up access to deposit accounts at the RBA is critical to ending the private bank cartel that is underwritten by the taxpayer and the full faith and credit of the Australian commonwealth.

      • The RBA is just a reflection of decades of orthodox economic education, in saying that its a bit like the IMF where the research dept can do good white papers, whilst the Admin decides which way the wind blows – regardless.

    • I’ll have go pfh ….

      “It would be refreshing if all those true believers in economic rationalism and market economics would explain how their “free market” beliefs are consistent with:”

      skip … economic rationalism = homo economicus w/a side of market economics = TINA E.g. lacks human social construct when considering price and lastly “free markets” is an ideological meme i.e. you do have to believe in it and largely taken out of context by the author that coined the term – for a more accurate account see Galbraith Sr.

      1. Giving private banks a monopoly over electronic liabilities of the public central bank.

      skip here … yes and no considering the 3 phases of the Fed over its history and how that’s reflected in the RBA E.g. electronic computational tool use completely transformed the banking sector and at the end of the day the congress or parliamentarians are the ones that ultimately have authority over public funds.

      2. Having the RBA seek to manipulate the price at which the private banks lend those liabilities to each other

      skip … the setting IR [manipulate] aspect has more to do with notions grounded in monetarism and its latter variants due to the loanable funds obsession, because its a cornerstone to the whole “economic rationalism” thingy and without it the house of ideological cards is blown away – see past opines by Krugman and now Larry and Co giving up ground on stuff around the edges whilst maintaining the core axioms. Lest we forget Milton’s 2% is viewed as a quasi gold standard for the elites.

      3. Having the RBA buy up bonds issued by state governments when those state governments are perfectly capable of persuading their citizens to invest in their spending programs.

      Skip … wellie after “economic rationalism” was used during Plaza the notion of state governments persuading local consumers [aka citizens] the notion of the Village went Global with a side of Veblen’s absentee investor syndrome.

      4. Having the RBA manipulate the price of financial assets

      Disagree that the RBA dictates what flow of funds investors allocate in seeking yield in the near term and that does not even broach the question of T1 financial mobs MOMO like Blackrock or Carlyle per se, so I think your agency is misplaced. QE in countries is different, say the U.S. also bought its own prime issued mbs, unlike others due to different dynamics.

      5. Having the RBA manipulate the price of residential housing assets.

      See above.

      What on earth is so difficult about allowing the general public and non-banks the freedom to operate accounts at the RBA?

      They will be still free to use the private banks if they choose but they would not need to deal with a bank to settle a basic transaction with another RBA account holder.

      Skip … the notion is based on the faulty equilibrium/public theory with a side of game theory in an imaginary world where the market rewards the virtuous and punishes the sinners …. and no one needs gov totalitarianism to enforce any rules of fair play. Not that covid has shown all the inability of this system to deal with outliers – see Taleb or Mandelbrot.

      Force the banks to actually compete for unsecured investors (aka depositors).

      Why do that when its easier to do postal banking with government guarantees and democratic assurances under a no profit incentive.

      Sorry buddy but there are no chariots at the bottom of the red sea and contra to some opinions the sky’s did not keep spreading ….

      • pfh007.comMEMBER

        That was good – apart from the stuff we usually disagree about and there is not much point re-hashing that.

        But

        “..It would be refreshing if all those true believers in economic rationalism and market economics would explain how their “free market” beliefs are consistent with:”

        You hardly qualify as a true believer in economic rationalism and market economics!

        What I have in mind are those that actually profess a preference / faith in “free” markets and the movement of people, goods and services and capital between countries.

        • I’m a adherent of PKE after decades of seeking, so I should not have to fill in the blanks with you, hence its disingenuous to ascribe emotive propaganda labels in lieu of an evidence based argument as you were want in the past, I learn more from the latter IMO.

          Unabashedly a duelist/reformer with an eye to future events which don’t reflect the past – your stakes in the ground sadly.

          Caveat … I’m not suggesting you’ve had ill intent for humanity personaly [saw your covid comments] or support any anti social views … its just the methodology and its results that I disagree with.

          • pfh007.comMEMBER

            Yawn,

            I should have expected some Skippy droppings in response.

            What ever stripe you claim to be the fact remains that you have defended the role of private banks in the public monetary system for years and you NEVER have any positive policy proposals that we can evaluate.

            If you really were PKE then you would be promoting specific policies that could be evaluated but you don’t because you are too scared that your proposals would open you up to scrutiny. Much easier to just moan and endlessly state that the answers lay back in time and we can’t do anything until everyone agrees that Skippy’s analysis of the problem is the right one.

            But it is good to see that you seem to be now on board with the criticisms of giving private banks a monopoly on central bank liabilities (other than notes and coins).

            OR are you still arguing that banks are perfectly fine and there is no reason to end their monopoly privileges over operating accounts at the public central bank?

          • OK as I noted above your emotive – yawn – bit is tiresome, let alone, PKE has tabled a wide set of policy options with MMT being the foundation for framing the “political” debate. It’s not me you wrangle with pft but the perspectives of others, that you project that yours is your own is another matter ….

          • pfh007.comMEMBER

            We are not interested in your claims to PKE “authority” as though that is some slam dunk.

            How do you want the government to apply “MMT” insights?

            Lower taxes?

            More money for defence?

            More pay for teachers?

            Cut public funding to private schools?

            Higher minimum wages?

            No work rights for temporary resident holidays?

            Take a position for a change beyond boring us with your gainsaying and the answers lay back in time schtick.

          • Lmmao at the – Royal We – shtick and evidence is its own authority, so it requires no affiliation with anyone or group to vindicate it.

            Per the other questions you should already know all the answers to them by those that forward social democracy with MMT/PKE policy recommendations, which are easily sourced – Kelton, Black, Wray, Mitchell, Murphy, et al, so I really don’t understand why you would need me to unpack it all. Seems everything in your book is centered on banks and if you had your way the rest would just magically workout as imagined.

  3. “What on earth is do difficult about allowing the general public and non-banks the freedom to operate accounts at the RBA?”

    We are the great unwashed ,we are not allowed to do what our élite brethren can.

    • It certainly appears that way but the mystery is why so few ‘commentators’ who claim to be generally supportive of free markets and free trade and economic liberalism generally fail to demand that those ideas be applied to the monetary system.

      How do they justify a big fat dysfunctional and broken cartel right at the centre of the economy?

      Why were all the other state / private industry cartels (wheat board, egg board, potato board etc) a problem that needed fixing but not the one for Public Money?

  4. “How do they justify a big fat dysfunctional and broken cartel right at the centre of the economy?”

    Because they are a part of the cartel and your (us) not..criminals that’s all they are.

    • Banks are what they are due to decades of ideological policy advocacy and not an isolated event considering the tender mercies of C-corps, chartered by the governments in law, hence government sets the stage, so the question begging is why it advances decisions that are corporatist friendly over the well being of it citizens.

      At the end of the day the question – is – what is the function of the state and why …

  5. So the plan now is to throw money primarily at houses to keep prices up. Essentially to bandaid over things until we can start importing foreigners en mass again. Let the good times roll!

    • Again why did the U.S. splew est 34T large and contra to some peoples opinions could not induce hyper inflation, so is it a supply side drama or a demand side and in the latter how does income expectations [tm] shape reality for everyone.

      Banks are not stoopid* and will not lend to projects with dim prospects like small businesses or anything that people will not care about come push or shove E.g. real estate, cars, or anything that is in the pursuit of class distinction because its a social psychological Bernays style construct of social organization that benefits a few.

      Hint …. post wages and productivity diverging many are forced to use credit for daily expenditures [consumption and not capital formation on the expectation that there is no major down draft] and an entire industry is built around facilitating that paradigm based on fee extraction and gotchas. Now if more stringent rules about issuing credit and the attendant fee extraction was based on cost of doing business and not equity valuations, wages at a local level might reflect in things like RE and other daily consumables, sourced locally, items sourced elsewhere is determinate on FX and price administration by Mfg et al to support debt weighing, equity = executive remuneration = share holder meme incentive …

      At the end of the day its Conservative Contractual Moralism from the top down and why the IS-LM is sacrosanct even if its just a false parable from antiquity.

      • pfh007.comMEMBER

        “..Banks are not stoopid* and will not lend to projects with dim prospects like small businesses or anything that people will not care about come push or shove E.g. real estate, cars, or anything that is in the pursuit of class distinction because its a social psychological Bernays style construct of social organization that benefits a few…”

        You have got to be kidding?

        They lend if there is security and there is ability to pay the interest on the loan.

        Beyond that do not care and no longer have the capacity to assess a loan application.

        Debt Peddling 101 – extend credit and extract interest on the credit extended but always have solid security for the credit.

        Considering how much you like to boast about the bankers in the Skippy family tree, one might have thought you would know a bit about banking.

        Next think you will be tell using that the objective of banking is to create productive new economic capacity and add to the common wealth.

        • happy valleyMEMBER

          Banks will lend irresponsibly in accordance with Josh’s edict or else? Back to the future for our banks!!!!!!!!!!!!!!

        • 90%+ of all small business fail in the first 3 to 5 years pfh, hence why most are family, partnership, credit card, leveraged asset backed and not bank loan affairs. This is well known stuff buddy so I don’t know why you make it all out about banks, its roots are deeper, your just focusing on latent after effects.

          Family connections are C-corp and banks are just one of them, so again the same dynamics are applicable across the board, no need to fixate on banks alone.

          But then again I would rather fix the price of labour and not fiddle with money stuff …

  6. happy valleyMEMBER

    Bill orgasming at -5% pa RBA cash rate and ultimate destruction of retail depositors and expropriation of their deposits?