MNI INSIGHT: Any RBA QE Would Be Part Of Package Of Measures

By Lachlan Colquhoun

     SYDNEY(MNI) - The Reserve Bank of Australia is likely to implement a

package of stimulus measures, and not just quantitative easing via government

bond purchases, should its hopes for housing recovery prove unfounded and prompt

it to make further rate cuts, MNI understands.

     For the moment, the Bank believes fiscal stimulus and its previous monetary

policy moves, with rates cut to a record low 1% in July, have built a floor in

the housing market, which should bolster consumer confidence.

     But officials are keeping a close eye on lenders to see if they pass

cheaper loans onto business and consumers. Until recent months, the RBA believed

it had enough conventional policy room to stimulate the economy, and additional

rate cuts would precede any resort to unconventional policy tools. Should these

be necessary, the RBA has concluded from its examination of policy in other

parts of the world, such as the eurozone, that the best way to maintain the

supply of credit and to lower bond yields would be a combination of measures

such as buying government bonds, providing cheap loans to commercial banks, or

even purchasing equities

     Speaking on Tuesday, Deputy Governor Guy Debelle said the RBA could cut

rates to "somewhere around about zero, a quarter, half a percent," if growth

stalled, and could consider QE or other policies.

     MNI understands the RBA is very conscious both of the diminishing returns

from reducing interest rates when they are already at low levels and of the

possible impact of this on retirees, who rely heavily on interest earned from

term deposits.

     So far, it still expects an improvement in the economy in the second half

of the year and into 2020, something it sees as particularly likely if the

recently re-elected Coalition government adds promised fiscal measures to

already-enacted personal tax cuts.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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