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Speculation is rife Australia is about to start printing money, as RBA governor Philip Lowe prepares to speak on quantitative easing

Jack Derwin
  • The suggestion that quantitative easing (QE) could be introduced to Australia for the first time has reemerged after the RBA confirmed governor Philip Lowe will speak on the topic later this month.
  • It further reinforces the belief of some economists, like economic consultancy firm Capital Economics, that QE will be introduced next year.
  • Others like former Gillard adviser Stephen Koukoulas however remain sceptical, comparing the remoteness of its possibility to Saint Helena in the South Atlantic Ocean.

The Reserve Bank of Australia (RBA) is due to give what will likely be its most closely-watched speech in years.

On Tuesday, the RBA confirmed that governor Philip Lowe will officially give a speech on unconventional monetary policies like quantitative easing (QE), the buying of government bonds to inflate the money supply.

The speech titled 'Unconventional Monetary Policy: Some Lessons from Overseas' will be delivered at the annual Australian Business Economists (ABE) dinner in Sydney on 26 November. It's belived that QE could deliver a weaker Australian dollar – a prospect the RBA would be excited about.

"Once the lower bound is reached it is not possible to further stimulate the economy via standard interest rate cuts. Any additional monetary policy stimulus would most likely take the form of Unconventional Monetary Policy [including] quantitative easing – i.e. asset purchase programmes – forward guidance and new central bank lending operations," CBA economist Gareth Aird said in a note.

"But [unconventional monetary policy] is only one option and comes with a number of potential negatives. There are a raft of other policy options available to stimulate aggregate demand. The other options generally fall under the umbrella of “fiscal policy” and include tax cuts, more infrastructure spending and more government recurrent expenditure."

CBA is not alone, with a host of others voicing concerns that the potential downsides of QE policy outweigh the benefits, especially when fiscal policy remains largely on the sidelines.

"As we have pointed out repeatedly recently, we think fiscal policy makes more sense than pushing monetary policy to its limits," HSBC chief economist Paul Bloxham said in a research note last month.

But while there's a feeling that there are better alternatives, some believe that QE will find its way to Australia regardless.

"We think that the Bank’s forecasts for GDP growth and the labour market remain too optimistic and we expect the Bank to cut rates to 0.25% and launch quantitative easing in 2020," Capital Economics noted following the RBA's decision to leave the cash rate on hold at its November meeting.

Others, like economist and former Gillard adviser Stephen Koukoulas, are far more optimistic about the Australian economy, and therefore far more sceptical about QE's chances here.

"More signs the economy is ticking up. Good news. RBA delivering QE is more remote than Tristan da Cunha," he tweeted in response to NAB's business survey on Tuesday.

https://twitter.com/TheKouk/status/1194059188361674757

Lowe has spoken repeatedly about the potential of unleashing unconventional policy tools – a so far untested move here in Australia.

In August, he told the Federal Government that those options were on the table "if the circumstances warranted it".

"[But] I hope we can avoid that," he added.

Two months later, Lowe qualified that unconventional measures like QE and negative interest rates require support from the government.

“One key lesson is that the tools are most effective when used together with a broader set of policies, like fiscal and prudential measures,” he said.

The government is, as it was then, unenthused at the idea that it might need to sacrifice a budget surplus to keep the economy ticking.

Whatever Lowe's current stance on the unconventional, he's likely to issue another plea to Canberra to get onboard when he delivers his highly-anticipated speech later this month.