RBA cuts 25bps, fiscal support, QE on the way – ANZ

The Australia and New Zealand Banking Group (ANZ) analysts believe “another rate cut in April seems more likely than not, even with fiscal support arriving soon. This will trigger a discussion about QE.”

Key quotes:

“The RBA Board cut the cash rate 25bp to a record low of 0.5% at its March meeting.

Things are very fluid at present, which makes it difficult to take too firm a view about the likely evolution events. The statement holds out the prospect of a return to something approaching trend growth once the virus is contained.

The statement also notes that fiscal support is on the way.

We expect to see the Government announce fiscal measures relatively soon. 

We’ll take the RBA at their word that 0.25% is the effective lower bound for the cash rate.

Reaching that point will immediately prompt speculation about the prospect of quantitative easing (QE).

Indeed, that speculation has already begun. We have argued that this next step was a long way off and would require exceptional circumstances for it to be taken. The potential scale of the economic shock from COVID-19 could, unfortunately, provide the required exceptional circumstances.

So we have to acknowledge that QE in 2020 is something that has to be considered.”