Daily Commentary BY THE CURVE TEAM –

Guy Debelle Confirms RBA Has Room to Move if Needed

7th of December, 2018

If you want an insight in the the lessons from the GFC, the RBA’s thinking, tools they have at their disposal and how they can and will use them if necessary then I highly recommend you take the time to read last nights speech by Guy Debelle.

In his address to the Australia Business Economists Annual Dinner, Guy Debelle too the attendees through a short recap of the GFC along with some of the lessons learnt and the questions that still remain. It is incredibly insightful and canvasses many important themes which will be prevalent over the months and years ahead.

One key point that has been picked up, and in some cases reported on out of context, is the ammunition and policy tools at the RBA’s disposal and how they may use them. Debelle said that while the probability of the next move in the cash rate is likely to be up, not down, he went on to say:

“should that turn out not to be the case, there is still scope for further reductions in the policy rate. It is the level of interest rates that matters and they can still move lower. We have also been able to examine the experience of others with other tools of monetary policy and have learned from that. Hopefully, we won’t ever have to put that learning into practice. QE is a policy option in Australia, should it be required.”

This is an important reminder that the RBA will remain pragmatic when making monetary policy decisions. Should the outlook shift, they won’t be tied to a pre defined path.

Despite the ability to cut if needed, the hurdle for the RBA to actually ease policy and cut the cash rate remains high. While the data has certainly softened and we are starting to see signed that the deterioration in the housing market is starting to spill over yet the case for cutting rates is still not a strong one. In time that is likely to change.

David Flanagan

Director - Interest Rate Markets