RBA could cut rates below 1%

Adam Smith 10 August 2016

reserve bank of australia signThe Reserve Bank could be forced to take drastic measures if it continues to cut rates.

NAB global head of research Peter Jolly has predicted that the official cash rate will fall to 1.00%, and could fall even lower. Should rates fall below 1.00%, Jolly said the Reserve Bank could turn to “non-conventional policy measures” such as quantitative easing, or QE, the Australian has reported.

QE involves a country’s central bank injecting money into the economy by buying government bonds. The monetary policy measure has been implemented in the United States and Europe, after official interest rate cuts brought cash rates to zero or below.

RBA cut could have limited impact

Jolly seized on comments by RBA deputy governor Philip Lowe, who said at a 2012 event that very low interest rates could mean a move toward different policy measures.

“Somewhere around 1% plus or minus a bit, I think once you get there, other options of unconventional monetary policy become more viable. Until you get there I don’t really see a strong case for doing these other unconventional things,” Lowe said, according to the Australian.

Jolly said the comments suggested that Lowe, who will become RBA governor next month, could consider using quantitative easing if rates fall to or below 1%.

“That’s not to say categorically that QE happens at 1%, but it’s pretty clear that given how far interest rates have declined towards their effective limits, if the economy needs additional stimulus, then we presume that will need to be considered,” Jolly said, according to the Australian.

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