JPM: RBA likely to opt for QE next year

11 October 2019

Unconventional monetary policy will be a next route for the Reserve Bank of Australia (RBA) as it is unlikely to move to negative rates, according to J.P. Morgan Asset Management.

Rates had been cut by the RBA three times this year and currently stood at 0.75%. There was speculation rates could be cut again but after that, the bank would be forced to undertake some form of unconventional monetary policy.

Quantitative easing (QE) was a common practice in Europe, Japan and the United States but had been used minimally in Australia. Also known as ‘money printing’ or ‘helicopter money’, it allowed central banks to make large scale purchases of government bonds or other assets for the purpose of injecting liquidity in the economy.

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Kerry Craig, global market strategist at J.P. Morgan Asset Management, said he expected Governor Philip Lowe would cut rates again to 0.5% but would stop short of negative rates.

“Negative rates won’t happen here, that has proven to be a black hole around the world.

“I expect quantitative easing could happen next year, possibly after the Budget as they will want to see what support there is from the Government first. QE will be something they try, I don’t think they will want to go down that path but they will forced to do so.”

He said there were various forms of unconventional monetary policy available to the RBA, not just QE, which included forward guidance, currency interventions and negative rates, and it was likely the central bank would use a combination, rather than just one form.

“They have already embraced forward guidance by telling us rates will be lower for longer so quantitative easing will be next. It needs to be a combination of unconventional monetary policies, not just one type, and that combination will vary by market.”

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