VIEW: RBC "put a low but not insignificant......>

RBA: VIEW: RBC "put a low but not insignificant probability of -ve interest

rates at 10-20% over the next 12 months & make the following observations:

- 1) Early stages of unconventional policy. Should activity disappoint, the RBA

would step up bond buying in both frequency & quantum in the 1st instance, as

well as liquidity measures. It could also expand the range of assets purchased,

extend the yield target to a longer duration & strengthen fwd guidance. Under

such circumstances, its language on -ve rates may soften.

2) Reluctance to move the cash rate -ve likely reflects its general discomfort

in already having been forced into unconventional policy territory.

3) Circumstances can change. The Governor suggested barely six months ago that

"QE is not on our agenda at this point in time." In the event of another shock

(including a sig. second wave of COVID-19 domestically or globally) and/or

central banks that increasingly adopt a -ve cash rate stance, pressure will

mount on the RBA to bring -ve rates onto its agenda.

- Speculation over -ve rates will likely linger until the health crisis is over

& we gain a better sense of the recovery."