RBA likely to adopt some form of asset purchase program over the course of 2020 – Westpac

In its weekly outlook, Westpac’s Bill Evens highlights the probabilities of ultra-low interest rates and the beginning of asset purchase (popularly known as Quantitative Easing-QE) as the Reserve Bank of Australia.

Key quotes

"The employment report for September printed a modest fall in the unemployment rate from 5.26% to 5.20%. Further, the underemployment rate fell from 8.53% to 8.35%. That will be sufficient to avert another rate cut from the RBA in November."

"Westpac’s current forecast (first set out on July 24) is that the ELB is 0.5% and will be reached at the February Board meeting."

"That decision will be determined by the RBA’s assessment of the likely effectiveness of moving to 0.25% on household cash flows and the currency, contrasted with any concerns around unintended consequences, particularly associated with the stability of the financial system; the impact on confidence; and whether such a move might have negative implications for inflationary expectations."

"However this process is different to the normal process for forecasting the end point of any policy cycle. That forecast typically hinges around forecasting how far below (or above) neutral (or R*) the cash rate will need to be pushed before the authorities can be comfortable of achieving the objectives of full employment and inflation sustainably in the 2–3% target range."

"So the policy around choosing the ELB will likely be determined by the trade-off between the expected impact of further cuts and unanticipated consequences of ultra-low interest rates."

"We also assess that the announcement from the banks that the standard variable home loan rate was “only” being reduced by 13–15 basis points would, following highly critical media coverage, have also undermined confidence."

"Combined with the impact on confidence of low rates and partial pass through it is reasonable to expect that the RBA will see the ELB as a positive level consistent with the 0.5% which we currently envisage."

"The RBA will be studying these programs and, given that they are very close to the ELB, is likely to be prepared to adopt some form of asset purchase program, if needed, over the course of 2020."

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Forex News

Editors’ Picks

EUR/USD chops around amid end-of-month flows, ahead of Trump

EUR/USD is battling 1.11, close to the two-month highs amid choppy trading. Hopes for a fiscal boost in Europe and mixed satisfactory data have supported the currency pair. , Sino-American tensions are rising and investors await President Trump's China announcement.


GBP/USD advances amid US dollar weakness, shrugging off concerns

GBP/USD is trading above 1.23, edging higher amid US dollar weakness and Britain's gradual reopening. Intensifying Sino-American tensions and the Brexit impasse are ignored. 


Cryptocurrencies: $348M in matured derivatives boost the market

Futures and options contracts' expiration brings a wave of volatility to the crypto market. Ethereum takes advantage and attacks resistances in the market dominance chart, Bitcoin goes back. Ripple disappoints despite regaining the third place in market capitalization.

Read more

Canada's economy falls by 8.2% annualized in Q1, better than expected, USD/CAD shakes

The Canadian economy squeezed by an annualized rate of 8.2% in the first quarter of 2020, better than -10% expected. Quarterly, Gross Domestic Product (GDP) squeezed by 2.1%. Most of the downfall occurred in March, with a drop of 7.2%, better than 8.5% projected. 

Read more

WTI drops 4% and eyes $32 mark amid risk-off, weakening demand

The selling pressure around WTI (July futures on Nymex) accelerates following the break below the 33 level, as bears now target the 32 support zone heading into the key US macro data and US President Donald Trump’s response to the Hong Kong issue.

Oil News