Australia Central Bank to Expand QE, May Cut, Economists Say

Australias central bank 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.

“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.

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% last Tuesday, is also discomfited by the currency‘s 27% 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 QE.

“The RBA will ease further sometime in the next six months,” he said, urging Lowe to follow the Federal Reserves 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 spiraling infections, 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.

— With assistance by Garfield Clinton Reynolds

(Updates with August job advertisements stalling in final two paragraphs.)