This week sees the start of the data run down towards the Reserve Bank board meeting a week tomorrow and the release of the third-quarter GDP figures the day after.
Before that tomorrow sees RBA Governor Lowe speak on “Unconventional Monetary Policy: Some Lessons from Overseas” a speech that will focus attention on what the central bank’s monetary policy stance might look like in 2020.
In other words, he will be discussing the use of quantitative easing (QE) in Australia as monetary policy to try and combat the weakening economy, low inflation and low wages growth and consumer spending. It will be the first explicit discussion by the governor on this controversial issue.
That will make the speech the focus for discussion in Australia from Tuesday onwards, overshadowing data on the value of construction work done in the third quarter (Wednesday) and private investment spending data and future intentions on Thursday.
The AMP’s chief economist, Dr. Shane Oliver wrote at the weekend “The Governor is likely to reiterate earlier RBA assessments that a combination of such policies can be effective but the key will be whether the Governor continues to describe negative interest rates as “extraordinarily unlikely” and QE as “unlikely”. ”
“The very fact that the Governor is devoting a full speech to the topic on the back of its comment a few weeks ago that each further rate cut brings us closer to “the point at which other [unconventional] policy options might come into play” suggests the RBA is seriously contemplating moving down this path.
“This makes sense as interest rates are closing in on zero, less of each rate cut is being passed and there is an increasing debate about their effectiveness,” Dr. Oliver wrote.
“Our assessment remains that it won’t take interest rates negative but that it will strengthen forward guidance on rates to the effect they won’t rise unless inflation is closer to target and it will undertake some form of QE,” he added.
Dr. Oliver says we can expect a 1% gain in September quarter construction activity (after the big fall in the June quarter) with dwelling activity down but engineering and non-dwelling building up slightly.
He says there could be a 0.2% fall in business investment on Thursday with a small improvement in CAPEX plans. Private credit growth data on Friday from the RBA for October Friday to show a slight pick-up in housing credit on the back of stronger housing finance commitments.