What’s behind the RBA’s rate cuts & Quantitative Easing Program?
Updated: Nov 18, 2022
Cup day is famous for rate cuts and rises and the Reserve Bank didn’t disappoint us this year making the historic decision to cut the cash rate by 0.15 per cent, slashing official rates to 0.10 per cent.
It also announced a broad-based quantitative easing program committing to purchasing $100 billion in government bonds of 5 to 10 years maturity over the next six month.
While the economic boost of this rate cut is likely to be small compared to that provided by the recent Budget, the further reduction in borrowing costs will support household and corporate finances and boost housing demand as well as keep the Australian dollar lower than would otherwise be the case.
For investors, it means low-interest rates will be with us even longer – with a rate hike unlikely until 2024 at the earliest.
To discuss the implications of this for our property markets and the economy in general, as well as to give us an update on the latest property data, I’m joined by Dr. Andrew Wilson, chief economist of My Housing Market.
What’s behind the RBA’s rate cut and Quantitative Easing Program?
It’s been another interesting week here in Australia, as well as overseas.
In Australia, the regular beginning of the month data showed us the gentle turning of the property markets as you’ve been predicting over the past weeks
And at the time we’re recording this show the result of the American election is not yet known, but that will have implications for the world economy as will the second-wave of Coronavirus infections in Europe and the USA, which is leading to lockdowns in the UK, France, Germany and in other countries.
These factors must have been part of the thinking behind the RBA’s decision this week.
Even before these overseas lockdown threats, the RBA signaled it was going to cut the cash rate, but the escalation of lockdowns overseas means global economic growth will be less and more stimulus from local sources will become more important.
The RBA will start buying up bonds issued by Australian governments.
It will spend about $5 billion a week, every week for six months until it has bought $100 billion State and Federal bonds giving them access to cheaper funds.
The ANZ-Roy Morgan Consumer Confidence increased 0.2pts to 99.9 this week and is now 5.7pts above the 2020 weekly average of 94.2 but is still 13.6pts lower than a year ago.
Consumer Confidence has now increased for nine straight weeks and is up 9.7pts since ending August at 90.2 and at its highest for over six months since March 14/15, 2020 (100.0).
This week’s increase was driven by increases in both Melbourne and Country Victoria after the end of Melbourne’s sixteen-week lockdown last week.
There was increasing confidence about the performance of the Australian economy this week with an increasing 12% of Australians expecting ‘good times’ for the Australian economy over the next 12 months (the highest figure for this indicator for over 7 months since March 2020) while 30% (down 4ppts), expect ‘bad times’ (the lowest figure for this indicator for over a year since July 2019).
Author Michael Yardney.