Australia central bank to expand QE, may cut rates

Bloomberg

Australia’s central bank (RBA) will boost its bond-buying program or cut interest rates to help revive the economy from its first recession in almost 30 years, a survey showed.
Seven of 11 economists predict the Reserve Bank will ramp up quantitative easing by expanding its bond purchasing program, with UBS Group AG’s George Tharenou positing that this could begin as soon as next month. Most of the others, however, expect it will occur either towards the end of this year or early 2021.
Cutting the cash rate and 3-year yield target to 0.10% was less popular. Of the three who said it was likely, Deutsche Bank AG’s Phil O’donaghoe expects the easing to happen by February and AMP Capital Investors Ltd.’s Shane Oliver similarly sees it in the next six months. Bloomberg Economics’s James McIntyre anticipates such a move in November, which would be shortly after third quarter inflation data and just before the RBA’s updated forecasts are released.
“The case for monetary policy to be better calibrated to that weak economic backdrop is getting stronger,” O’donaghoe said, underscoring the current soft demand for credit. He disagrees with RBA Governor Philip Lowe’s premise that lending weakness is a result of pandemic fears, not the cost of money.
Governor Philip Lowe last week expanded and extended the RBA’s lending facility for banks and indicated a renewed willingness to explore further measures to revive growth following Victoria state’s second lockdown.
The central bank, which kept its cash rate and 3-year yield target at 0.25 percent last Tuesday, is also discomfited by the currency’s 27 percent surge from a March low and would like to cool the appreciation even if it’s unable to stop or reverse it.
Stephen Roberts of Laminar Capital was the outlier in the survey, seeing the RBA further expanding the Term Funding Facility.
Oliver, chief economist at AMP, maintains that the cheap bank funding is another form of quantitative easing.
“The RBA will ease further sometime in the next six months,” he said, urging Lowe to follow the Federal Reserve’s policy tweak on consumer prices. “Matching the Fed on inflation average targeting, more dovish forward guidance and more QE via more aggressive bond buying could all help keep a lid on the Australian dollar.”
None of the survey respondents suggested the central bank would move to negative interest rates or directly intervene in the currency market.
Growth in job advertisements almost stalled in August as strict lockdown measures in Victoria state were reintroduced early in the month to control spiralling infections of coronavuirus, according to a report by Australia & New Zealand Banking Group Ltd.
ANZ Senior Economist Catherine Birch expects “outright falls” in national employment during August and September, adding that in the longer term, the government is likely to need to spend tens of billions of dollars to support jobs growth.