Media Release

Experts contradict RBA governor and expect quantitative easing in 2020

        • Nearly half (46%) of experts tip quantitative easing (QE) in 2020
        • RBA governor said QE and negative interest rates were "extraordinarily unlikely"
        • 97% of experts predict a hold of cash rate, 66% believe cut coming in February

2 December, 2019, Sydney, Australia- Experts predict the Reserve Bank of Australia (RBA) will take unconventional measures to stimulate the economy in 2020, according to Finder.

In the latest Finder RBA Cash Rate Survey™, 33 experts and economists weighed in on future cash rate moves and economic indicators, including wage growth and housing affordability.

While economists almost universally expected no cut in December, many experts are forecasting a cut in February. This may be the last for a significant period, with three-quarters (73%) of economists saying a 0% cash rate is unlikely.

RBA governor Phillip Lowe recently insisted that the federal bank had "no appetite" for quantitative easing (QE), a process where the central bank creates new cash to decrease, or ease, the cost of borrowing.

But nearly half (46%) of experts said it was likely we'd see QE in 2020.

Graham Cooke, insights manager at Finder, said QE will be on the cards if the rate cuts continue to be ineffective beyond the housing market.

"The RBA said it may look to alternative stimulus methods once the rate hits 0.25%.

"We're only two cuts away from that, and the three cuts of 2019 have failed to stimulate anything beyond the housing market," Cooke said.

Aside from QE, experts were asked to weigh in on the likelihood of a number of scenarios affecting the Australian economy.

On the bright side, a recession looks increasingly unlikely in 2020, with 89% of experts not expecting an economic decline and 88% thinking it unlikely that house prices will fall.

Three-quarters of experts (76%) don't foresee a significant rise in mortgage defaults, 64% think a US-China trade deal is likely and 52% say it is likely that house prices will fully recover.

Cooke said the positive outlook on China is significant because the fate of the US-China trade deal was cited as economists' number one economic concern in the August survey this year.

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On the less cheery front, 79% expect the Aussie dollar to decrease in value versus the American greenback, 62% expect employment to fall and only a third (33%) expect retail sales to recover.

Two-thirds predict cash rate to cut in 2020

While nearly all experts and economists predict a hold in December (97%, 32/33), two-thirds (66%, 22/33) expect the cash rate to drop to 0.50% in February 2020.

This figure reflects the 64% of experts who predicted February would be a cut in last month's survey.

Economic Sentiment Tracker tips lower

Results from Finder's Economic Sentiment Tracker, which gauges five key indicators – housing affordability, employment, wage growth, cost of living and household debt – continue to remain low.

"Finder's Economic Sentiment Tracker has been bouncing around a bit of late, with the average positivity across all 5 metrics trending down over the last 12 months.

"An average of 10% is unprecedented. House prices tracking up while economic confidence is heading south could be a worrying sign for prospective buyers," Cooke said.

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Here's what our experts had to say:

Nicholas Frappell, ABC Bullion: (Hold) "A full assessment of the impact of recent cuts, in addition to progress on trade talks, may allow the RBA to wait until after the New Year."

Shane Oliver, AMP Capital: (Hold) "Growth is likely to remain lower for longer keeping the economy away from full employment and the inflation target for even longer than the RBA is forecasting. As a result, further easing is likely. The RBA should be cutting in December but appears inclined at this stage to continue to "wait and assess". Data to be released in the days prior to the December meeting could yet tip them over into a December easing though so it's a close call."

Alison Booth, ANU: (Hold) "Monetary policy sensitive/now rates are slow – to what fiscal policies might be introduced. And they should be."

Julie Toth, Australian Industry Group: (Hold) "Australia's economy is failing to accelerate (again) in 2019–20. Non-mining business investment remains especially weak, but it is sorely needed to boost our productivity growth and real incomes for all. In the absence of meaningful tax reform and micro-economic reform, another rate cut probably won't help much, but it is the only response that the RBA can offer."

Malcolm Wood, Baillieu: (Hold) "Dec on-hold whilst assessing impact of 75bps of cuts to-date."

David Robertson, Bendigo And Adelaide Bank: (Hold) "Expect the RBA to remain on hold until February or May 2020, when another cut to 1/2% is likely. QE may be more effective, in the absence of fiscal stimulus."

Craig Emerson, Craig Emerson Economics: (Hold) "RBA is waiting for further evidence on changes in components of GDP."

Timothy Andrew Moore, CUA: (Hold) "RBA have given a clear easing bias but also that they are willing to wait and see the outcome from previous cuts, whilst giving the consumer time to digest the changes. Not a question of if but more so timing."

Trent Wiltshire, Domain: (Hold) "The RBA's own forecasts have the unemployment rate remaining above full employment, so wage growth and inflation won't pick up without more expansionary monetary policy."

Nicholas Gruen, Lateral Economics: (Cut) "The textbook says the RBA should cut aggressively as I've been arguing for five years. They instinctively agree, but they're agonized that sustained low rates blow bubbles. So each cut is minimal and often not consecutive. I think that blows worse bubbles – sustaining low rates for longer. But given they didn't move last month, I think they'll cut."

John Rolfe, Elders Home Loans: (Hold) "Wages still not rising but with very little scope left for reductions the RBA will have to look at other levers (i.e. quantitative easing)."

Mark Brimble, Griffith Uni: (Hold) "The RBA is likely to want to hold remaining rate cuts in reserves and wait to see how macro events play out including US election and impeachment, Brexit, AUD, property market stablisation, etc."

Tim Nelson, Griffith University: (Hold) "It is not clear that a rate cut is required but should the economy continue to soften, a rate cut is more likely in early 2020."

Tony Makin, Griffith University: (Hold) "Housing prices have risen in major capitals recently and the exchange rate has been fairly steady since the last rate cut. Further cuts at this juncture would fuel property prices and may actually be counterproductive for business and household confidence."

Peter Haller, Heritage Bank: (Hold) "The RBA clearly has an easing bias but it has the time to monitor economic data until next year before easing again."

Alex Joiner, IMF Investors: (Hold) "The RBA is clearly considering further easing of policy but has expressed a desire to evaluate the impact of rate cuts to date. There hasn't been any compelling data since the November meeting that would have changed this to the Bank and therefore a further cut early next year is to be expected as the data softens."

Peter Boehm, KVB Kunlun: (Hold) "The RBA should adopt a hold position for the remainder of this calendar year. The downsides far outweigh the upsides for another rate cut at this time for the reasons I alluded to in my previous commentary. Ideally, rates won't go any lower, although they might, but this direction is unclear for now – this is why I have left open when a further rate movement may occur."

Leanne Pilkington, Laing+Simmons: (Hold) "The two rate cuts of 2019 had the desired effect from a housing market perspective, but broader economic concerns remain. The RBA is conditioning us to expect low wage growth for the foreseeable future and household debt levels are at worrying highs. It was interesting to see how close the RBA came to cutting rates last month and we still feel the next move will be downward."

Mathew Tiller, LJ Hooker: (Hold) "Given the cash rate is already at record low levels and the lacklustre economic response to the recent rate cuts, the RBA will hold steady this month and reassess conditions in the new year before cutting rates further."

Geoffrey Harold Kingston, Macquarie Business School: (Hold) "[The RBA is holding due to] weak jobs growth & a drop in breakeven inflation from 1.4 to 1.3% p.a."

Jeffrey Sheen, Macquarie University: (Hold) "I marginally expect that global economy growth will bottom out in mid-2020."

Stephen Koukoulas, Market Economics: (Hold) "The economy will be growing at a solid pace and inflation will be touching 2%."

Michael Yardney, Metropole Property Strategists: (Hold) "The latest economic news must have disappointed the RBA. The jobless rate is rising, employment is falling and wages growth is declining. This means another interest rate cut is on the cards, but the RBA is likely until next February."

Susan Mitchell, Mortgage Choice: (Hold) "The minutes of the November monetary policy meeting suggest the RBA is in no rush to cut the cash rate a fourth time in 2019 given the length of time it takes for monetary policy stimulus to absorb into the economy. The Bank is likely to wait and see whether positive signs emerge from the economy before acting again. That being said, forecasts for wage growth, inflation and the labour market suggest that the Board may resort to cutting the cash rate once again in the new year."

Alan Oster, NAB: (Hold) "The RBA are waiting to see impact of past actions."

Jonathan Chancellor, Property Observer: (Hold) "A February decision allows time for more data to enable to central bank to sense the way the prior cuts have impacted on the economy."

Matthew Peter, QIC: (Hold) "The RBA will wait on the hope that recent rate and tax cuts filter through to consumer spending and that the US and China will agree on a phase 1 trade agreement."

Noel Whittaker, QUT: (Hold) "I don't think the world is out of its financial problems yet."

Nerida Conisbee, REA Group: (Hold) "For now, it is likely rates will remain on hold. We have had three cuts in quick succession and so far the economic response has been muted. At this stage, it is likely that rates will be cut in February however it will depend on data coming out over summer."

Christine Williams, Smarter Property Investing: (Hold) "[The RBA is holding due to] stability within the housing and employment markets."

Mala Raghavan, University Of Tasmania: (Hold) "There is a high possibility that the RBA will not cut the cash rate in December 2019. The rate is low at 0.75% and some sectors such as housing appears to be rebounding, especially in the two major cities – Sydney and Melbourne. However, if this rebound does not translate into rising consumer spending and or investment activities, then we might see another rate cut around February 2020. Meanwhile if there is some form of fiscal stimulus, that might alleviate RBA's pressure to reduce the cash rate further next year."

Dr Andrew Wilson, independent economist: (Hold) "Latest economic data must remain a concern to the Bank with no bounce evident from three recent cuts to official rates and tax cuts. Latest jobless and wages data have however moved in the wrong direction and certainly shortened the odds for another cut to official rates – perhaps as early as February next year. The RBA has clearly indicated its preparedness to continue to cut rates and has also flagged the possibility of initiating quantitative easing policies if rates move to zero levels with no effect on the economy. A December cut is unlikely, regardless of recent mixed data, would be diluted by the distractions of the lengthy holiday period and may be perceived as a counterproductive desperation move. Housing markets have predictably been activated with lower rates but strong prices growth has been restricted to Sydney and Melbourne where prices remain below the previous peaks of two years ago – reflecting those markets currently in "catch-up mode" driven by buyers chasing notional discounts."

Other participants: Bill Evans, Westpac.


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