Flood of cash tipped

RBA primed for ‘unconventional’ economic boost

ONE of the nation’s leading economists says the Reserve Bank will launch unconventional monetary policy measures next year as existing settings fail to fire the economy.

JP Morgan chief economist Sally Auld has added her voice to calls the RBA will launch a massive money-printing program known as quantitative easing.

Ms Auld said the RBA’s latest economic update showed it cannot hit its inflation and unemploy - ment targets without more radical action.

“In our view, this leaves the door wide open for the RBA to move towards the next phase of easing, via unconventional monetary policy,” she said yesterday.

Ms Auld already expects the RBA to cut the cash rate by another 0.25 percentage points in February to take it to a new historic low of 0.5 per cent.

“We now add quantitative easing to this forecast, and anticipate that the RBA will deliver a package of unconventional monetary policy measures in the fourth quarter of 2020,” she told clients in a note.

Quantitative easing involves a central bank issuing more money and using it to buy assets — usually government bonds or mortgagebacked securities — from banks.

The program works to flood the economy with new money, lowering interest rates and encouraging banks to lend more to stimulate the economy.

Japan, the US and Europe have all run massive quantitative easing programs.

Economists at Westpac, AMP and Capital Economics have all tipped the RBA to launch quantitative easing amid a slowdown in both the domestic and international economies.

Ms Auld said the RBA is likely to launch quantitative easing by buying $35 billion to $50 billion of government bonds from local banks.

Ms Auld said her prediction for quantitative easing was based on the assumption that the Federal Government would not launch a major new round of tax cuts or other stimulus measures in its May budget.