For the full picture, download the report – Australian Markets Weekly 19 August 2019

Analysis – RBA sees Australian QE as unlikely in the near term; unconventional policy most likely to take the form of buying government bonds, but not clear that this will have much additional effect on yields outside of a crisis

• Considerable insight into the RBA’s current thinking on unconventional monetary policy (including QE) was contained in the latest Semi-Annual Testimony to Parliament. Former RBA Deputy Governor Stephen Grenville also argues today in the Australian Financial Review that there is no place for QE in Australia outside of a crisis.
• The RBA suggests it is unlikely to deploy unconventional monetary policy until interest rates are much closer to zero, something the Bank sees as possible, but not likely on the basis of their current economic forecasts. That said, the Governor did countenance Australian interest rates hitting zero if central banks around the world all reduced their policy rates to zero, something markets price as much more possible in recent months (see Chart of the week).
• It still seems likely that further interest rate reductions – and additional fiscal policy support – are likely to be deployed before the RBA turns to unconventional policy. However, the Governor did note that non-conventional measures could be deployed in a situation where growth noticeably underperforms expectations, not necessarily requiring a crisis.
• Measures to support consumer spending and improve wages growth are arguably more appropriate to the economy’s current circumstance.
• The suggestion by the Governor that interest rates are likely to remain very low for an extended period effectively works as qualitative forward guidance. This likely would have much of the effect of Quantitative Easing (i.e. purchasing government bonds), absent pressure on bank funding costs.

The week ahead – Jackson Hole symposium on the ‘Challenges for monetary policy’

• Global: The biggest event on the international calendar comes at the end of the week with the invitation-only Jackson Hole Symposium on “Challenges for monetary policy”, which runs from Thursday to Saturday. The opening address will be delivered by Fed Chair Powell. Coincidentally, G7 leaders are meeting in Biarritz, France, on 24-26 August, where the market will be on alert for any views/news on geopolitics and trade tensions.
• Local: Governor Lowe’s speech at Jackson Hole on Saturday is likely to provide some update on the RBA’s policy outlook, although the topic of the address has yet to be released. That speech is expected to eclipse the RBA minutes on Tuesday, which will likely repeat the RBA’s messages from the Statement on Monetary Policy. The NAB Cashless Retail Sales index is released on Wednesday and will be the first sign of whether the tax offsets have boosted spending in July (more likely to affect August).

Customers can receive Australian Markets Weekly and other updates directly in their inbox by emailing nab.markets.research@nab.com.au with the name of their NAB relationship manager.