RBA Should Cut Now to Avoid QE

By Sophia Rodrigues

A few weeks back I wrote an article about how in theory the RBA could avoid QE, but to do so requires continuation of pre-emptive monetary policy stance and effective forward guidance. Market is currently pricing in less than 15% chance of a rate cut next week, which effectively means instead of being pre-emptive, the RBA would pause and assess. That is, it would drip-feed the final one or two rate cuts before hitting ELB. But doing that would only increase the risk of QE. The RBA may have the last opportunity to avoid QE -- if it delivers "unexpected" rate cut next week and communicates clearly the cut is aimed at improving the economy's prospects rather than reacting to downside risks. Equally importantly, the RBA needs to draft an ingenious forward guidance that sounds credible to both the market and the public. Should the RBA do it? I think yes. It's the path of least regret.